Which of the following statements is TRUE?
A)A monopoly cannot set price and quantity such that the point lies above the demand curve.
B)A monopoly can charge whatever it wants.
C)Profit maximization occurs by setting price first.
D)Both A and B.

Question

Quizplus · Accepted Answer

A monopoly cannot set price and quantity such that the point lies above the demand curve. The demand curve represents the maximum price consumers are willing to pay for a given quantity of a good, so setting a higher price than the demand curve would mean there are no consumers willing to buy that quantity at that price. This would result in no sales for the monopoly, which would not be profit-maximizing. While a monopoly has some power to set prices due to lack of competition, it still has to consider the demand curve in order to maximize profits. Option B is not true because a monopoly still has to consider demand and cannot charge an arbitrary price without losing sales. Option C is not true because profit maximization occurs by choosing the quantity at which marginal revenue equals marginal cost and then setting the price based on the demand curve.

Which of the Following Statements Is TRUE