Multiple Choice
Based on the diagram showing the demand, marginal revenue, and marginal cost curves for a monopolist, at which point does the monopolist maximize profit?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
A monopolist does not have a supply curve because:
A
the monopolist sets both price and quantity based on demand and marginal cost, not by responding to market price
B
the monopolist is a price taker in the market
C
the monopolist faces perfectly elastic demand
D
the monopolist always produces at the minimum point of the average cost curve
Verified step by step guidance1
Understand what a supply curve represents: it shows the relationship between the price of a good and the quantity a firm is willing to supply, typically assuming the firm is a price taker in a competitive market.
Recall that a monopolist is a price maker, meaning it chooses both the price and quantity to maximize profit, rather than taking the market price as given.
Recognize that the monopolist's output decision is based on equating marginal revenue (MR) to marginal cost (MC), and then using the demand curve to find the corresponding price.
Since the monopolist's quantity supplied depends on the shape of the demand curve and its marginal cost, there is no unique relationship between price and quantity supplied independent of demand, so no well-defined supply curve exists.
Therefore, the monopolist does not have a supply curve because it does not respond to market price alone; instead, it sets price and quantity simultaneously based on demand and marginal cost.
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