Author Question: How does a monopolist choose the profit maximizing output-price ... (Read 58 times)

Jramos095 · **on:** Jun 30, 2018

How does a monopolist choose the profit maximizing output-price combination?

Question 2

One of the popular myths about monopoly is that:
a. a monopolist is the single seller of a particular commodity.
b. a monopolist can charge any price for his/her good.
c. a monopolist is a price maker.
d. a monopolist may earn positive profits even in the long run.
e. a monopolist faces the market demand curve.

tranoy · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If marginal cost of production is assumed to be zero, the monopolist produces at the point where marginal revenue becomes zero. In case of positive marginal cost, the monopolist's profit maximizing output is obtained at the point where marginal revenue is equal to marginal cost. In either case, the corresponding price obtained from the demand curve becomes the market price.

Answer to Question 2

b