Chapter 11R, Problem 18MCQ

To determine

The correct option for given situation where monopolist’s profit or loss can be defined if it charges price where MR exceeds MC.

Answer to Problem 18MCQ

Option a is correct answer.

Explanation of Solution

Explanation for correct option:

a.

Marginal revenue is greater than the marginal cost then monopolist can increase its profit by increasing production units as per the output rule. The firm will earn profit if MR >MC. Therefore, option a is correct.

Explanation for incorrect options:

b.

Since it will earn profit as MR>MC, there will be no losses. Therefore, option b is incorrect.

c.

Since, it is difficult to say that firm earns breakeven as the output level is not given. Therefore, option c is incorrect.

d.

If MR exceeds MC then profit can be maximized by increasing the output level for which firms must reduce the prices. Therefore, option d is incorrect.

e.

In monopoly competition firms, if prices are increased when MR>MC , then firm will incur losses or reduction in profit level. . Therefore, option e is incorrect.

Economics Concept Introduction

Marginal revenue: MR refers to the revenue that is generated by the firm by selling one additional unit in the market.

Demand curve: Demand curve refers to the relationship between price and the output at which consumers are ready to purchase.