Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A monopolist maximizes profit where marginal revenue equals marginal cost.
B
The socially optimal output level occurs where marginal cost equals marginal social benefit.
C
Monopolists produce at the point where price equals marginal cost.
D
Monopolies can lead to underproduction compared to a competitive market.
E
A monopolist will always set output levels equal to the market demand.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopoly, the company is the only seller in the market, which means it can set its own prices. A key idea is that a monopolist will choose an output level where its marginal cost equals marginal revenue to maximize profit. This means the monopolist produces less than what would be produced in a competitive market, leading to higher prices for consumers. For example, if a monopoly produces 100 units of a product, it might charge a higher price per unit compared to a competitive market where many companies would drive prices down by producing more. Therefore, statements about monopolies producing less output at higher prices compared to competitive markets are true.
Detailed Explanation
Other options are incorrect because Many think a monopolist makes the most money when marginal revenue equals marginal cost; Some believe the best output level is when marginal cost equals marginal social benefit.
Key Concepts
Monopoly Output Levels
Marginal Revenue and Marginal Cost
Socially Optimal Output
Topic
Monopoly Output Levels
Difficulty
easy level question
Cognitive Level
understand
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