The XYZ Company is a profit-maximizing firm with a monopoly in the production of pennants.The firm sells its pennants for $10 each.We can conclude that the XYZ Company is experiencing:
A) diminishing marginal returns to its variable factor(s) of production.
B) increasing marginal returns to its variable factor(s) of production.
C) constant marginal returns to its variable factor(s) of production.
D) entry by rival firms whenever profits become positive.

Question

Quizplus · Accepted Answer

The fact that XYZ Company is a profit-maximizing monopoly does not directly inform us about its marginal returns. However, in the context of most production processes, diminishing marginal returns to variable factors of production are common as output increases. This principle reflects that as more of a variable input (like labor) is added to a fixed input (like machinery), the additional output generated from each additional unit of the variable input eventually decreases. The information provided does not specifically address the company's marginal returns, but diminishing marginal returns are a typical characteristic of production processes. The other options (B, C, D) are not directly supported by the information given about the company's pricing or monopoly status.

The XYZ Company Is a Profit-Maximizing Firm with a Monopoly