Critically evaluate and explain each statement (Each statement should include at
ID: 1202112 • Letter: C
Question
Critically evaluate and explain each statement (Each statement should include at least a one paragraph response supporting or refuting the statement Explain your position) Because they can control product price, monopolists are always assured of profitable production by simply charging the highest price consumers will pay. The pure monopolist seeks the output that will yield the greatest per-unit profit. An excess of price over marginal cost is the market's way of signaling the need for more production of a good The more profitable a firm, the greater its monopoly power The monopolist has a pricing policy, the competitive producer does not. With respect to resource allocation, the interests of the seller and of society coincide in a purely competitive market but conflict in a monopolized market.Explanation / Answer
a. This is not true because monopolist's will incur losses when the Average Total Cost curve is above the Demand curve or the Average Curve. In this case the firm will have to bear losses as prices charges will le lower than the Average Total Cost of the good at that level of the output.
b. This is true because the monopolist is a profit seeker and will produce the quantity at which MR = MC. So, will seek the output that will yield greatest per unit profit.
c, This is true statement. As price denotes the Marginal Benefit from the good, so the excess of price over MC denotes that consumers are willing to pay than the Marginal Cost of the good. Allocative efficiency is attained at the point where P = MC.
d. This is a False statement. The monopoly power of a firm does not depend on the profitability of a firm rather it depends on control over the raw materials, patents, copyrights, natural monopoly or declining average cost of production.
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