Which of the following statements are true?
i. in a monopoly, average revenue always equals the price of the good
ii. a monopoly's profit is maximised when price equals marginal revenue
iii. the marginal revenue curve will always lie below the demand curve
A)(i) and (ii) only
B)(i) and (iii) only
C)(ii) and (iii) only
D)(i), (ii), and (iii)

Question

Quizplus · Accepted Answer

Statement (i) is true because in a monopoly, the firm is the only supplier of the good and can therefore charge the highest price possible, which is equal to the demand for the good. Therefore, the average revenue (total revenue divided by quantity sold) will always equal the price of the good.

Statement (ii) is false because a monopoly's profit is maximised where marginal revenue equals marginal cost, not price. Setting the price equal to marginal revenue does not necessarily result in a profit-maximising level of output.

Statement (iii) is true because the demand curve reflects the price consumers are willing to pay for a given quantity of the good, while the marginal revenue curve reflects the additional revenue received from selling one more unit of the good. As a monopoly increases its output, it must lower the price to sell more units, leading to a marginal revenue curve that lies below the demand curve.

Which of the Following Statements Are True