A monopolist is in equilibrium if:
a. his profits are in excess of normal
b. his price causes sales of the quality at which MR = MC
c. consumers are satisfied with his price
d. he sells the amount at which MR crosses the quantity axis
1 Answer | Add Yours
The answer to this question is either Option A or Option B. It is somewhat hard to tell which is correct because you have made some mistakes in typing the options. For example, I feel sure that the word “profit” should appear after “normal” in Option A and I assume that the word “quality” in Option B is a mistake and should read “quantity.”
I believe that Option A is the best answer, assuming that it does read “normal profit.” Monopolists are able to make economic profit at equilibrium. This is not possible when there is perfect competition, but it is possible in a monopoly. This is one reason why a monopoly is not considered to be efficient.
Option B does have some truth to it. Monopolists (as well as sellers in every other market structure) will produce at the quantity where their marginal revenue equals their marginal costs. This is the profit maximizing (or loss minimizing) point. However, I believe that Option B is wrong because it says that the price is what causes the monopolist to produce at this point. In reality, the monopolist chooses the quantity at which MR = MC and then charges whatever price the market will bear at that point. It is the quantity (and demand) that determines the price, not the price that determines the quantity as stated in Option B.
Options C and D are simply wrong. Consumers do not have to be satisfied with the price. The monopolist does not sell where MR crosses the x-axis because this is not the point at which profit is at a maximum.
I believe that Option A is the best answer.
We’ve answered 319,642 questions. We can answer yours, too.Ask a question