Which of the following statements regarding a monopolist is correct?
A)A monopolist will only produce an output where the demand is elastic.
B)A monopolist will only produce an output where the demand is inelastic.
C)A monopolist will only produce an output where the demand is unitary elastic.
D)A monopolist will only produce an output where the demand is perfectly elastic.

Question

Quizplus · Accepted Answer

A monopolist will produce the output where the marginal revenue equals marginal cost, but since the demand curve is downward sloping, the monopolist will always face a price higher than the marginal revenue. Therefore, the monopolist will produce less than the socially efficient level of output, choosing to operate where the demand is relatively elastic to maximize profits.

Which of the Following Statements Regarding a Monopolist Is Correct