Answer to Question #114996 in Microeconomics for Siya

Question #114996
If the long-run marginal cost curve is below the marginal revenue curve at the point of output for a monopolist that is making profit, then the firm has:
1) too large a plant size
2) too small a plant size
3) insufficient knowledge about the plant size until it knows it marginal cost
4) insufficient knowledge about the plant size until it knows it’s demand curve
1
Expert's answer
2020-05-11T20:00:57-0400

The correct answer is (2) too large a plant size

The profit maximizing conditions for the monopoly is that the marginal revenue must be equal to the marginal cost. ("\\text{MR=MC}" )

When the marginal cost curve is below the marginal revenue curve then the marginal revenue will be greater than the marginal cost. "\\text{MR>MC}". When a monopoly is too large, it will generate more profits and revenue, therefore, the marginal revenue will be more than the marginal cost.




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