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In: Economics

Suppose the following graph represents a monopoly firm's situation: A. What would be the profit-maximizing level...

Suppose the following graph represents a monopoly firm's situation:

A. What would be the profit-maximizing level of output for the firm?

Solutions

Expert Solution

Price determination under monopoly is based on the policy of profit maximization, be it short or long term one. The preconditions for a monopoly are - a single seller; no close substitute; firm is the industry; entry barriers for new firm; and producer is the price maker.

A monopolist would wish to profit maximise, setting output level to be MC=MR. It only produces at the elastic part of demand. It will set its price at a markup based on the demand curve. The price set is based on the elasticity of demand

Rahul Sunny answered 2 years ago
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