A monopolist receives a subsidy from the government for every unit of output that is consumed.He has constant marginal costs and the subsidy that he gets per unit of output is greater than his marginal cost of production.But to get the subsidy on a unit of output, somebody has to consume it.
A)He will pay consumers to consume his product.
B)If he sells at a positive price, demand must be inelastic at that price.
C)He will sell at a price where demand is elastic.
D)He will give the good away.
E)None of the above.

Question

Quizplus · Accepted Answer

If the monopolist sells at a positive price, he can only do so if the demand is inelastic at that price, otherwise consumers will not buy his product. As the monopolist has constant marginal costs, any subsidy he receives will increase his profit for each unit he produces and sells. Therefore, even if he sells at a lower price due to the subsidy, he would still make a profit as long as the demand remains inelastic at that price.

A Monopolist Receives a Subsidy from the Government for Every