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Homework answers / question archive / Which of the following is (are) true of a monopoly? (i) A monopoly has the ability to set its price
Which of the following is (are) true of a monopoly?
(i) A monopoly has the ability to set its price.
(ii) A monopolist's marginal revenue will always increase when it lowers the price of its product.
(iii) A monopoly can never experience an economic loss.
a. (1) only
b. (11) only
c. (1) and (ii) only
d. (1) and (ii) only
The correct answer is: d. (i) and (ii) only.
The monopoly has ability to set his/her price, and is therefore referred to as the price maker. The monopoly charge price where marginal revenue is equal to marginal cost on the demand curve. Monopoly can never experience economic loss because he/she charges price above the marginal cost and thus, makes supernormal profits. The monopolist marginal revenue will decrease when it lowers the price.
