Question

Consider the following statements about monopolies and revenue.

I. A monopolist will never select an output in the inelastic part of a linear
demand curve.
II. To maximize revenue, the monopolist should produce at the midpoint
of a linear demand curve.
III. For a monopolist, marginal revenue is greater than price.


All three statements are true.
I is false; II and III are true.
All three statements are false.
I and II are true; III is false.
I and III are true; II is false.

Which of the following statements correctly describes the relationship between price and marginal cost at the profit-maximizing point in perfectly competitive and monopoly markets?
Price is greater than marginal cost in perfectly competitive markets and equal to marginal cost in monopoly markets.
Price is greater than marginal cost in both markets.
Price is equal to marginal cost in both markets.
Price is equal to marginal cost in perfectly competitive markets and greater than marginal cost in monopoly markets.
Price is less than marginal cost in both markets.

Answer 1

1) The answer is "C". The statement I and II are True and III is false. In a monopoly, the Marginal revenue is always less than the price.

A monopolist will never produce at a point where the inelastic part of a linear demand curve. And a monopoly will produce at a point where the marginal revenue is maximum, that is the midpoint of the demand curve.

2) "Price is equal to the marginal cost and greater than marginal cost in the monopoly market", In a perfectly competitive market the price and MC and MR and AR are all equal at the equilibrium point. But, in a monopoly which is profit maximizing the price will always be higher than the MArginal cost.