Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Monopolies maximize profit by setting output where marginal cost equals marginal revenue.
B
Perfect price discrimination allows monopolists to charge different prices to different consumers, increasing total revenue.
C
Monopolies always produce at the same output level regardless of market demand.
D
The presence of a monopoly leads to a socially optimal allocation of resources.
E
Monopolists can influence the market price by adjusting their output levels.
Understanding the Answer
Let's break down why this is correct
Answer
Monopolies maximize their profits by controlling the supply of their product and setting prices higher than in competitive markets. They do this because they are the only seller, so they can decide how much to produce and at what price to sell. For example, if a monopoly produces 100 toys and sells them for $10 each, it can earn $1,000. However, if it reduces the number of toys to 80 and raises the price to $12, it might earn $960, but the reduced quantity may still lead to higher profits overall if demand is strong. Ultimately, monopolies focus on finding the best balance between price and quantity to achieve the highest possible profit.
Detailed Explanation
Other options are incorrect because Many think monopolies maximize profit by matching costs and revenue; Some believe that charging different prices helps monopolies.
Key Concepts
Profit Maximization in Monopolies
Marginal Cost and Marginal Revenue
Price Discrimination
Topic
Profit Maximization in Monopolies
Difficulty
hard level question
Cognitive Level
understand
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