In a monopoly market:
A) the lack of competition causes the price of the product to equal average cost.
B) a firm maximizes profits by producing the level of output that minimizes average cost.
C) the additional revenue from selling one more unit of output usually is greater than the price.
D) the lure of above-normal profits may give a firm an incentive to develop new products and technologies.

Question

Quizplus · Accepted Answer

In a monopoly market, since there is only one firm, it has the power to control the price of the product. This often leads to above-normal profits, which can provide an incentive for the firm to innovate and develop new products and technologies. The other options are not accurate for a monopoly market - the price of the product will typically exceed average cost (not equal it), the firm maximizes profits by producing the level of output where marginal revenue equals marginal cost (not where average cost is minimized), and the additional revenue from selling one more unit of output is typically less than the price (due to the firm's market power).

In a Monopoly Market