Question

In: Economics

· Question 16 For a monopolist, at each output level, marginal revenue is less than the...

· Question 16

For a monopolist, at each output level, marginal revenue is less than the price because:

  1. of the law of diminishing returns
  2. monopolist produces a larger output than would purely competitive firms
  3. price should be lowered to increase sales quantity

· Question 17

In the long-run, a pure monopolist will make:

  1. zero economic profit
  2. only normal profit
  3. decreasing economic profit
  4. zero or positive economic profit

· Question 18

Which of the following is not necessarily true at the profit-maximizing output of a monopolist?

  1. P > MC
  2. AR = ATC
  3. Mπ = 0
  4. P > MR

Solutions

Expert Solution

16.

Since the profit-maximizing condition for the monopoly is

MR=MC

Corresponding to this condition the output is determined and on the demand curve the price will be determined.

Since the firm is a single seller of the goods and firm is price maker and therefore for selling more units the monopolist firm need to decrease the price. This is the reason why at each output level, marginal revenue is less than the price because price should be lowered to increase sales quantity.

Hence option c is the correct answer.

17.

Since in the case of pure monopoly there is no competitors, therefore firm has the control over price in the long-run also and firm makes super normal profit. It means positive economic profit. But when firm price and ATC are equal then economic profit will be zero.

Hence option d is the correct answer.

18.

Since the profit-maximizing condition for the monopoly is

MR=MC

At the profit-maximising condition Price will be always greater than MR and it will also greater than MC.

But at the profit-maximising level of output the average revenue cannot be equal to the ATC. Hence this is not the necessary condition for the profit-maximising level of output of the monopoly.

Hence option b is the correct answer.


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