Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal revenue is always equal to price, leading to no barriers to entry.
B
Marginal revenue is less than price, allowing firms to maintain high profits despite barriers to entry.
C
Marginal revenue is higher than average total cost, which encourages new firms to enter the market.
D
Marginal revenue cannot be calculated in markets with high barriers to entry.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopolistic market, a single firm controls the entire supply of a product, which allows it to set prices higher than in competitive markets. Marginal revenue, which is the additional income gained from selling one more unit, is lower than the price of the product because the firm must lower the price on all units sold to sell more. This means that the monopolist faces a downward-sloping demand curve, making it difficult for new competitors to enter the market. Barriers to entry, like high startup costs or strict regulations, protect the monopolist by making it hard for others to compete. For example, if a company has a unique patent on a drug, it can charge high prices and earn profits without worrying about new firms entering the market.
Detailed Explanation
In a monopolistic market, marginal revenue is less than the price. Other options are incorrect because This answer suggests that marginal revenue is the same as price, which is not true in monopolies; This option implies that high marginal revenue encourages new firms to enter.
Key Concepts
Marginal revenue
Barriers to entry
Topic
Economic Profits and Market Dynamics
Difficulty
medium level question
Cognitive Level
understand
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