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Author Question: A profit-maximizing monopoly never produces an output in the inelastic range of its demand curve. ... (Read 103 times)

Lisaclaire

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on: Jun 29, 2018
A profit-maximizing monopoly never produces an output in the inelastic range of its demand curve. True or false? Explain.
 
  What will be an ideal response?

Question 2

How does price serve as a signal to resource owners?
 
  What will be an ideal response?


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mcabuhat

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The statement is true. The profit maximizing condition is MC = MR. If demand is inelastic, marginal revenue is negative. But marginal cost is never negative. So it's impossible to maximize profit producing an output in the inelastic range of the demand curve.

Answer to Question 2

When consumers decide that a good or service is more appealing than before, demand rises. This creates a shortage at the original equilibrium price, putting upward pressure on price. The higher price increases the amount of profit firms can earn, and provides them with an incentive to produce more. Thus, resource prices are bid up to attract more resources to the firms. The end result is a movement of resources into the industry.


Lisaclaire

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Reply 2 on: Jun 29, 2018
Excellent

T4T

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Reply 3 on: Yesterday
Gracias!

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