A monopolist sets prices above the competitive price and output below the competitive output level.Some customers are willing to pay more than marginal cost,yet do not receive the product.Thus:

Question

Quizplus · Accepted Answer

The fact that some customers are willing to pay more than marginal cost but do not receive the product implies that there exist gains from trade that are not exhausted. This is because the monopolist sets prices above the competitive price, which is equal to marginal cost, leading to some customers being priced out of the market despite the fact that they are willing to pay more than the cost of production. Therefore, choice A is the correct answer. Choice C and D are incorrect because it is not clear from the given information whether or not the monopolist is maximizing profits or experiencing decreasing returns to scale.

A Monopolist Sets Prices Above the Competitive Price and Output