Which of the following statements is correct for a monopolist? i) The firm maximizes profits by equating marginal revenue with marginal cost.
Ii) The firm maximizes profits by equating price with marginal cost.
Iii) Demand equals marginal revenue.
Iv) Average revenue equals price.
A) i), iii), and iv) only
B) i) and iv) only
C) i), ii), and iv) only
D) i), ii), iii), and iv)

Question

Quizplus · Accepted Answer

A monopolist maximizes profits by producing where marginal revenue equals marginal cost. However, the monopolist does not equate price with marginal cost but rather charges a higher price since it has market power. Demand equals average revenue for a monopolist, not marginal revenue. Average revenue does equal price, but not all monopolists maximize profits by equating price with marginal cost. Therefore, only i) and iv) are correct statements.

Which of the Following Statements Is Correct for a Monopolist