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Homework answers / question archive / If a monopoly chooses the optimal price instead of the optimal quantity, then its profits will be A

If a monopoly chooses the optimal price instead of the optimal quantity, then its profits will be A

Economics

If a monopoly chooses the optimal price instead of the optimal quantity, then its profits will be A. lower because consumers are more sensitive to price. O B. lower because costs are increasing in quantity. OC. unchanged because the optimal price and quantity yield the same profit. O D. higher because a monopoly only has power to set price. O E. higher because profit is increasing in price. Why can't a monopoly choose both price and quantity? A monopoly can't choose both price and quantity because A. a monopoly produces a homogeneous product. O B. a monopoly faces no competition. OC. a monopoly faces the treat of potential entrants. OD. a monopoly has the power to set price, not the demand curve. O E. a monopoly has no supply curve.

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1. Option C.

  • A monopoly usually charges a very high price and produces very less output.
  • This will lead to an inefficient outcome within the market economy.
  • If it chooses an optimal price instead of the optimal quantity, then it's profits will not change.
  • This is because, producing an optimal quantity of output at an optional price will yield the same profit.

2. Option D.

  • A monopoly has the power to only alter the price of its products rather than altering the output it produces.
  • This is because it cannot alter the demand curve of the market as it cannot influence the quantity demanded.
  • In order to earn higher profits it must decrease it's price to sell more output.

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