Since price _____ for a monopoly firm, the profit-maximizing monopoly firm does not produce the quantity of output for which price equals marginal cost

Marketing Jan 09, 2021

Since price _____ for a monopoly firm, the profit-maximizing monopoly firm does not produce the quantity of output for which price equals marginal cost.

a. does not equal marginal revenue,

b. does equal marginal revenue,

c. is higher for a perfectly competitive firm than,

d. is lower for a perfectly competitive firm than,

e. a and d.

Expert Solution

Option A

For a profit maximizing monopoly, price is not equal to marginal revenue

One key difference between a firm operating in a perfectly competitive market and a monopoly lies in the fact that marginal revenue is not equal to price for monopolies while the two figures are equal for perfectly competitive firms. Profit maximizing monopolies do not follow the rule because changes in their level of output affect their pricing.

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