Multiple Choice
Which of the following terms is NOT utilized by monopolists in determining how to maximize profit?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
Which of the following statements about a monopolist is true?
A
A monopolist can always set any price it wants without affecting the quantity sold.
B
A monopolist produces at the point where price equals marginal cost.
C
A monopolist faces a downward-sloping demand curve for its product.
D
A monopolist has no barriers to entry in its market.
Verified step by step guidance1
Step 1: Understand the nature of a monopolist's demand curve. Unlike a perfectly competitive firm, a monopolist is the sole seller in the market, so it faces the entire market demand curve, which is typically downward sloping. This means that to sell more units, the monopolist must lower the price.
Step 2: Analyze the statement 'A monopolist can always set any price it wants without affecting the quantity sold.' Since the monopolist faces a downward-sloping demand curve, changing the price will affect the quantity demanded. Therefore, this statement is false.
Step 3: Consider the statement 'A monopolist produces at the point where price equals marginal cost.' In monopoly, the profit-maximizing output is where marginal revenue equals marginal cost, but price is generally greater than marginal cost due to the downward-sloping demand curve. Hence, this statement is false.
Step 4: Evaluate the statement 'A monopolist has no barriers to entry in its market.' By definition, a monopoly exists because there are significant barriers to entry that prevent other firms from entering the market. Therefore, this statement is false.
Step 5: Conclude that the true statement is 'A monopolist faces a downward-sloping demand curve for its product,' which correctly describes the market power and pricing behavior of a monopolist.
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