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?

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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 1 year ago

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