Question

Which of the following statements is TRUE?

A. A monopoly cannot set price and quantity such that the point lies above the demand curve.

B. A monopoly can charge whatever it wants.

C. Profit maximization occurs by setting price first.

D. Both A monopoly cannot set price and quantity such that the point lies above the demand curve and A monopoly can charge whatever it wants.

I answered D, but was told it was incorrect.

Answer 1

Monopoly is a market structure where there is only one seller selling goods or services that are not sold by any other seller and is not price taker, a monopoly is a price maker.

1) A monopoly sets prices in such way that the profit are maximized and profit are maximized where MR=MC. And this Point definitely lies on the demand curve not above that, Hence A is correct

2) The more inelastic the demand curve is the lower the sale is lost as prices are increased because of rigid responsiveness of prices on quantity .

Hence option (D) is correct

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