Some economists argue that pure monopolists will purposely avoid the price-output combination that will maximize their profits. Explain how this less-than-maximum profit behavior could be rational
What will be an ideal response?
A pure monopoly may fear the threat of competition and keep prices and profits intentionally low to avoid attracting other firms into the market, or it may increase its expenditures to maintain the barriers to entry. Either action decreases profits below the maximum possible. Also, the monopoly may wish to avoid any government intervention (or more government intervention), and by avoiding high economic profits, it may not call attention to its real monopoly power.
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A consumer has $50 to spend. He has to decide between buying two goods: magazines priced at $5 each and DVDs priced at $10 each. Which of the following combinations of the two goods will exactly satisfy his budget constraint?
A) 3 magazines and 4 DVDs B) 2 magazines and 4 DVDs C) 6 magazines and 1 DVD D) 2 magazines and 2 DVDs
A demand curve will shift out for any of the following reasons except that:
a. preference for a good increases. b. price of a substitute falls. c. income rises. d. price of a complement falls.
A Gini of 0 implies that:
a. every family has an equal amount of income. b. the top 10% of the families appropriate almost 100% of the total income. c. the bottom 90% of the families have only 10% of the total income. d. the bottom 20% of the families have 80% of the total income. e. only 1 family appropriates the entire national income.
Refer to the accompanying figure. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure:
A. the equilibrium quantity will increase and the equilibrium price will decrease. B. the equilibrium quantity will decrease and the equilibrium price will decrease. C. the equilibrium quantity will decrease and the equilibrium price will increase. D. the equilibrium quantity will increase and the equilibrium price will increase.