Question

Which of the following statements is (are) true of monopolies?
(x) Economists assume that monopolists behave as profit maximizers, however, profits are not unlimited and a monopolist may experience losses.
(y) Monopolists have the ability to set prices at whatever level they desire but the demand curve will dictate how much they will be able to sell at that price.
(z) A monopolist’s profit-maximizing quantity of output is determined by the intersection of the marginal
revenue curve and the marginal cost curve.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (z) only

which of the following statements is (are) correct?
(x) A profit-maximizing perfect competitor will produce the level of output at which price is equal to marginal
cost, but the typical profit-maximizing monopolist will not.
(y) Selling a good at a price where the demand curve intersects the marginal cost curve is consistent with
the socially optimal level of output and a competitive market, but, it is not consistent with a market that
consists of a profit-maximizing monopolist.
(z) Monopoly pricing causes a deadweight loss because a monopoly produces an inefficiently low output.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

Answer 1

Q1. Option D. Because of market power, monopolists set the profit maximising price at the intersection of MR and MC curve

Q2. Option A. All of them are true, as perfect competitor price where MC=MR, optimal quantity is at the intersection of demand and MC, monopoly causes DWL because of high price