In maximizing profits, a single-price monopolist will charge a price that is: a

Marketing Jan 09, 2021

In maximizing profits, a single-price monopolist will charge a price that is:

a. Less than marginal cost,

b. Equal to marginal cost,

c. Greater than marginal cost,

d. There is not enough information to answer the question.

Expert Solution

c. Greater than marginal cost,

For-profit maximization in any market, MC = MR. However, in monopoly, P > MR as the demand curve for a firm is downward sloping. Hence, P > MR = MC.Because a monopoly faces a downward-facing demand curve, therefore, a monopoly produces less output and sells it at a higher price. Because the marginal revenue for a monopoly is always below the demand curve, therefore, the price will always be above the marginal cost at the equilibrium. A monopolist charges a price greater than marginal cost at the profit-maximizing level of output.

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