Question

The monopolist will always produce

		in the inelastic portion of the demand curve.
		at the unit elastic point on the demand curve.
		at the point of perfect elasticity.
		in the elastic portion of the demand curve.

Answer 1

Correct option - in the elastic portion of the demand curve.

As we know demand curve can be divided into two parts from the middle upper part is elastic whereas lower part is inelastic. But monopolist will produce upper part that is elastic part because Marginal revenue is higher and marginal cost is lower in that portion.

Although with increase in price quantity demanded will decrease but it will be offset by increase in MR and decrease in MC.

Firm will not produce in the lower(inelastic) part because even firm will keep decreasing price there will be no relative change in demand.