which of the following statements about a monopolist is least accurate? 1. It faces a downward sloping demand curve. 2. Will always be able to earn economic profit 3. profit maximizing monopolist will expand output until marginal revenue equals marginal cost 4. profit maximizing monopolist will supply less of its product than the amount that will maximize the benefits for the overall economy I picked C as I thought Monopoly always produce at the level where MR is positive, and will not produce MR=MC, its like similar to what #4 is saying, which is true. The answer Key is B, why is that? Maybe natural monopoly is always considered? or the answer key is wrong. It comes from Schweser.
or i am wrong in a sense that there are situations where monopoly will not earn economic profit (loss).
All operaters will try to produce where Marginal revenue = Marginal Costs. I think you need to look up the definition of marginal revenue bud. Its important to have a good understanding of what it means. There are situations where a monopoly will incur losses. Just think of Average cost pricing arrangement
oh yeah right, thanks
Also because theyre price searchers they face imperfect information about demand and will occasionally misprice their products leading to either 0 profits or losses. I got that question wrong as well at first but the answer makes sense.
B. 1) is true for price searchers. 3) is true for every firm. 4) is a really important point to remember about monopolists (reduction in economic efficiency)
I understand why all the other answers are true for a monopoly, but I can’t recall why a monopoly will not always earn economic profits.
It can be tricky question with wording “always” . Firms can generate accounting profit but can incur loss on economic profit if the impicit/opportunity cost is very high.
As an economic major, the thing about the subject is that it is basically nothing but theory put into models. Answers A,C,D are consistent with economic theory but it doesn’t matter what type of business you’re in (extremely competitive or you own the industry) you can never say a certain business will ALWAYS earn a profit (even though that’s what a certain model predicts it should do)
for a monopolistic company, it will earn an economic profit in the short run but not in the long run, that’s why that answer is wrong. For a monopoly the firm will earn an economic profit both in the short and the long run but the question asks for monopolist not monopoly
JP, I think monopolist and monopoly are the same? It’s effin’ confusing man. You’re confusing it with MONOPOLISTIC competition…
If I’m not mistaken, difference between monopolistic and competitive competition is differentiated products through markup/advertising, although neither earns an economic profit in the long run?
that’s correct, neither earn an economic profit in the long run because eventually more and more firms will penetrate the market, increased competition will force firms out of business because of low barriers to entry but that doesn’t happen with a monopoly because barriers to entry are high
Monopolistic is competitive competition… Monopolistic Competition - A market structure in which a large number of firms compete by making similar but slightly different products.
JP_RL_CFA Wrote: ------------------------------------------------------- > that’s correct, neither earn an economic profit in > the long run because eventually more and more > firms will penetrate the market, increased > competition will force firms out of business > because of low barriers to entry but that doesn’t > happen with a monopoly because barriers to entry > are high In general this is true, but with enough product differentiation and brand recognition they could earn profits indefinitely
Chad, i’ve never seen a monopoly referred to as a monopolist in the text, so I assume it’s talking about monopolistic competition not a monopoly.
That’s true Isura but I went with the general rule of a monopolistic competition but good point
- When the monopoly is under government policy to produce with average cost rule or marginal cost rule, it does not earn an economic profit.