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Answer to Question #52945 in Microeconomics for Yana

Question #52945
multiple choice
1. A monopoly will price its product:
a. where total revenue is maximized.
b. where total costs are minimized.
c. at that point on the market demand curve corresponding to an output level in which marginal revenue equals marginal cost.
d. at that point on the market demand curve which intersects the marginal cost curve.

2. What should a profit maximizing monopolist do if she is currently producing where MC < MR?
a. Increase output until MC = MR.
b. Decrease output until MC = MR.
c. Shut down in the long run.
d. Keep producing at this level.
e. Operate only in the short run.
Expert's answer
1. C: Unlike perfect competitor monopoly itself establishes not only the number of products offered, but also the price by selecting a point on the curve of the industry demand. Since monopoly enterprise concentrated in it hands all the output, the demand curve of the enterprise coincides with the demand curve of the sector and monopoly faces a choice: whether to restrict sales to maintain high prices or reduce the price in order to increase sales. Under identical conditions of costs and demand a monopoly leads to higher prices and lower volume than perfect competition. To avoid exceeding the losses from the reduction of prices on growth of income from the sale of additional products, the monopolist must compare each time the expansion of the production of the total revenue from the sale of n units with a total income from sales of n + 1 units, that is, it follows the value of MR. Marginal revenue curve for a monopolist is twice steeper than demand curve. The monopolist maximizes profit at MC = MR.
2. A.

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