Question

A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.

true or false

Price discrimination is a rational strategy for a profit-maximizing monopolist when there is no opportunity for customers to engage in arbitrage across market segmentations

true or false

When regulating a monopoly with average cost pricing, the monopoly is able to enjoy a zero economic profit and the deadweight loss of an unregulated monopoly is eliminated.

true or false

Answer 1

A competitive firm maximizes profit at the point where marginal revenue equals marginal cost equals Price and a monopolist maximizes profit at the point where marginal revenue equals and NOT exceeds marginal cost. So the statement "A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost" is FALSE

Price discrimination is a rational strategy for a profit-maximizing monopolist when there is no opportunity for customers to engage in arbitrage across market segmentation. When there is difference market elasticity of demand and consumers cannot move across markets, the price discrimination will be successful. The statement thus is TRUE.

The statement that "When regulating a monopoly with average cost pricing, the monopoly is able to enjoy a zero economic profit and the deadweight loss of an unregulated monopoly is eliminated" is TRUE. When priced equal to average cost, the loss to society is eliminated, efficiency increases and firm earns normal profits or zero economic profits.