Examkin

Question

Difficulty: EasyMonopoly: Short-Run and Long-Run Price and Output Determination

A profit-maximizing monopolist determines its equilibrium output in both the short run and the long run at the point where marginal revenue equals marginal cost (MR=MCMR = MC).

Answer: Answer

Answer

True. A monopolist maximizes profit in both the short run and the long run by choosing the output level where marginal revenue equals marginal cost (MR=MCMR = MC).
The statement is true because the essential rule for profit maximization for any firm, including a monopoly, is to produce up to the quantity where marginal revenue equals marginal cost (MR=MCMR = MC). This decision rule holds in both the short run and long run.

Step-by-Step Solution

1
Recall the condition for profit maximization in microeconomics.
A firm maximizes total profit when the revenue generated by the last unit produced (marginal revenue) equals the cost of producing that unit (marginal cost).
If MR>MCMR > MC, producing more increases total profit; if MR<MCMR < MC, reducing output increases total profit.
2
Apply this rule to a monopoly firm across different time horizons.
The monopolist sets output where MR=MCMR = MC in both the short run and the long run.
The MR=MCMR = MC rule applies universally regardless of whether the monopolist operates in the short run or long run.

Key Concept

Monopoly Equilibrium Condition (MR=MCMR = MC)
Rate this question

Topics

Monopoly: Short-Run and Long-Run Price and Output Determination

More questions from this topic