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If a firm has a monopoly in the supply of an item, it A
If a firm has a monopoly in the supply of an item, it
A. will make economic profit no matter what the demand for the item.
B. can earn an economic profit in the short run, but will earn zero economic profit in the long run.
C. will maximize profit by adjusting output until marginal revenue equals marginal cost.
D. will maximize profit by adjusting output until price equals marginal cost.
E. Both C and D
Expert Solution
The correct answer is C. will maximize profit by adjusting output until marginal revenue equals marginal cost.
This is because the additional revenue that could be earned from selling a unit is set equal to the cost of that particular unit to earn the maximum profit. As given the case of monopoly market, lesser options are provided to the consumers for making product choices and the sellers are able to earn super normal profits.
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