Bob's Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is maximizing his profit, which of the following statements is true?
A)The price of Bob's bison burgers will be less than Bob's marginal cost.
B)The price of Bob's bison burgers will exceed Bob's marginal cost.
C)The price of Bob's bison burgers will equal Bob's marginal cost.
D)Costs are irrelevant to Bob because he is a monopolist.

Question

Quizplus · Accepted Answer

Bob's Butcher Shop has a monopoly on bison burgers within a 100-mile radius. This means that Bob can set his price above his marginal cost in order to maximize his profit. Because there are no close substitutes for bison burgers in the area, customers will be willing to pay a higher price. However, if Bob sets the price too high, he may lose some customers to substitutes such as beef burgers or chicken sandwiches. Therefore, Bob would set his price just above his marginal cost in order to maximize his profits.

Bob's Butcher Shop Is the Only Place Within 100 Miles