Which of the following is true?
A) A monopoly firm produces more than the efficient level of output.
B) A monopoly firm will maximize profits by producing the quantity of output where MR = MC.
C) A monopoly firm's demand curve is likely to be more elastic than a perfectly competitive firm's demand curve.
D) A monopoly operates where MR P.

Question

Which of the following is true?
A) A monopoly firm produces more than the efficient level of output.
B) A monopoly firm will maximize profits by producing the quantity of output where MR = MC.
C) A monopoly firm's demand curve is likely to be more elastic than a perfectly competitive firm's demand curve.
D) A monopoly operates where MR > P.

Quizplus · Accepted Answer

A monopoly firm will maximize profits by producing the quantity of output where MR = MC. This is because for a monopoly, marginal revenue is less than the price, so producing the quantity where MR = MC will ensure that the marginal cost of the last unit produced is equal to the marginal revenue earned from that unit, maximizing profits. Option A is incorrect because a monopoly firm will produce less than the efficient level of output. Option C is incorrect because a monopoly firm's demand curve is likely to be less elastic than a perfectly competitive firm's demand curve, meaning that they have more market power to increase prices without losing too many customers. Option D is incorrect because a monopoly will operate where MR = MC and not where MR > P.

Which of the Following Is True