Why will a profit-maximizing, single-price monopolist NOT produce the amount of output that maximizes its total revenue?
What will be an ideal response?
When total revenue is at its maximum, the demand is unit elastic and marginal revenue equals zero. However, to maximize its profit, a single-price monopolist produces so that its marginal revenue equals its marginal cost. If marginal revenue equals zero, then in order for this level of output to maximize the monopolist's profit, marginal cost also must equal zero. But marginal cost will never equal zero because to produce another unit always incurs some costs. Since marginal cost cannot equal zero, it is impossible for a profit-maximizing single-price monopolist to produce the amount of output that maximizes its total revenue.
You might also like to view...
Printing dollar bills without limit.
Answer the following statement(s) true (T) or false (F)
The labor supply curve facing a monopsonist is:
a. downward sloping. b. upward sloping. c. a horizontal line. d. backward bending. e. a vertical line.
An import quota will raise the local price of a good, which will _____ consumer surplus and_____ producer surplus
a. decrease; increase b. increase; increase c. decrease; have no effect on d. have no effect on; increase
Which of the following is most likely to be preferred by economists as a relatively more efficient measure to reduce pollution?
a. Marketable permits b. A command-and-control regulation c. Corrective subsidies d. Pollution charges