Explain why a monopolist must lower its quantity relative to a competitive market to maximize its profits.
What will be an ideal response?
Unlike competitive firms, which are price takers with no control over the market, monopolists have a downward-sloping demand curve exclusively for their product. Therefore, if a monopolist wants to increase its quantity produced, it must lower its price for all units sold. The reverse is also true: the monopolist can charge a higher price to everyone by decreasing its production. Therefore, the monopolist's marginal revenue is not the market price (as is the case in a competitive firm) but is rather a decreasing function of the quantity produced that is necessarily less than the price of the output. The monopolist, when lowering output from the competitive level, faces a tradeoff. By lowering its output, it loses the revenue on the output that it is no longer producing. But it gains revenue as it can sell its other output at a higher price. At least at first, when the marginal revenue is less than marginal cost, the monopolist can increase its profits by reducing output from the competitive level.
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When marginal benefit exceeds marginal cost in a market,
A) only consumer surplus is reduced. B) only producer surplus is reduced. C) consumer surplus and producer surplus are not affected compared to when production is such that marginal cost equals marginal benefit. D) the deadweight loss is negative. E) None of the above answers is correct.
Refer to Figure 4-5. With rent control, the quantity supplied is Q1. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get?
A) R1 B) R0 C) more than R1 D) R*
Dante has two possible routes to travel on a business trip. One is more direct but more exhausting, taking one day but with a probability of business success of 1/4. The second takes three days, but has a probability of success of 2/3
If the value of Dante's time is $1000/day, the value of the business success is $12,000, and Dante is risk neutral, A) it doesn't matter which path he takes, because he doesn't consider risk. B) he should take the 1-day trip, because he doesn't consider risk. C) he should take the 1-day trip, because $11,000 is greater than $9,000. D) he should take the 3-day trip, because it will increase his expected net revenue by $3,000. E) he should take the 3-day trip, because it will increase his expected net revenue by $5,000.
The natural rate of unemployment is always more than the actual rate of unemployment because it excludes frictional and seasonal unemployment rates
a. True b. False Indicate whether the statement is true or false