Suppose monopoly firm has exclusive ownership of a key resource, this results in:
A)high standards of service for customers
B)a price that reflects the best interests of society
C)a price that equals marginal cost of production
D)a price that exceeds marginal cost of production

Question

Quizplus · Accepted Answer

When a monopoly firm has exclusive ownership of a key resource, it can set the price higher than the marginal cost of production, which leads to higher profits for the monopoly firm. This is because the monopoly firm has no competition, so it can charge a higher price without losing customers to competitors. However, this results in a deadweight loss to society because the price exceeds the cost of production, which means that some consumers who would be willing to buy the good at a lower price are unable to do so. Therefore, the best choice is D.

Suppose Monopoly Firm Has Exclusive Ownership of a Key Resource