This topic contains a solution. Click here to go to the answer

Author Question: A monopolist can set any price it wants. So why does it still produce at a point where MC=MR, just ... (Read 38 times)

ghost!

  • Hero Member
  • *****
  • Posts: 560
A monopolist can set any price it wants. So why does it still produce at a point where MC=MR, just like a perfectly competitive firm?
 
  What will be an ideal response?

Question 2

Explain what will happen when the government imposes a maximum price that is above the market equilibrium price. Why is this true?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

mariahkathleeen

  • Sr. Member
  • ****
  • Posts: 337
Answer to Question 1

The point where MC = MR maximizes any firm's profit for the same reason it maximizes a perfectly competitive firm's profit. In particular, for small amounts of output it is the case that the MR exceeds the MC. Any unit for which MR > MC is a profitable unit to produce and so the firm wants to produce all of these units. As it increases its output, its total profit increases even as the difference between MR and MC shrinks. But as long as MR > MC, the unit is profitable and therefore is produced. Eventually the firm gets to the point where MR = MC. The firm does not want to go beyond this level of output, because for every unit beyond it MC>MR. Producing these units would cost the firm profit. So, once it starts producing, the firm won't stop producing additional units of output before it reaches the level for which MR = MC. Then, once it reaches this point, it won't go beyond this amount. Therefore the condition MR = MC determines the profit maximizing level of output.

Answer to Question 2

The maximum price will have no impact on the market. This is true because the price ceiling will only have an impact when the market equilibrium price is above it. Firms and consumers will otherwise not change their behavior.




ghost!

  • Member
  • Posts: 560
Reply 2 on: Jun 29, 2018
Thanks for the timely response, appreciate it


nyrave

  • Member
  • Posts: 344
Reply 3 on: Yesterday
Excellent

 

Did you know?

Atropine was named after the Greek goddess Atropos, the oldest and ugliest of the three sisters known as the Fates, who controlled the destiny of men.

Did you know?

Calcitonin is a naturally occurring hormone. In women who are at least 5 years beyond menopause, it slows bone loss and increases spinal bone density.

Did you know?

In ancient Rome, many of the richer people in the population had lead-induced gout. The reason for this is unclear. Lead poisoning has also been linked to madness.

Did you know?

A strange skin disease referred to as Morgellons has occurred in the southern United States and in California. Symptoms include slowly healing sores, joint pain, persistent fatigue, and a sensation of things crawling through the skin. Another symptom is strange-looking, threadlike extrusions coming out of the skin.

Did you know?

Critical care patients are twice as likely to receive the wrong medication. Of these errors, 20% are life-threatening, and 42% require additional life-sustaining treatments.

For a complete list of videos, visit our video library