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Zorluk: OrtaMonopoly: Characteristics and Sources of Monopoly Power

Which of the following characteristics distinguishes a pure monopoly from a firm operating under perfect competition?

  1. The firm faces a downward-sloping demand curve where marginal revenue is less than priceCevap
  2. B
    The firm maximizes profit at the output level where marginal revenue equals marginal cost
  3. C
    The firm sets its output price equal to marginal revenue at all levels of production
  4. D
    The firm charges a higher price in the sub-market where price elasticity of demand is higher

Cevap

The firm faces a downward-sloping demand curve where marginal revenue is less than price.
A monopolist is the sole supplier in the market and faces the downward-sloping market demand curve. To increase output, the firm must reduce the price on all units sold, causing marginal revenue to be strictly less than price (MR<PMR < P). In perfect competition, the firm faces a horizontal demand curve where price equals marginal revenue (P=MRP = MR).

Adım Adım Çözüm

1
Analyze the demand and revenue conditions of a monopolist versus a competitive firm
A perfectly competitive firm faces a perfectly elastic horizontal demand curve where price equals average revenue and marginal revenue (P=AR=MRP = AR = MR). In contrast, a monopolist faces the market's downward-sloping demand curve (P=AR>MRP = AR > MR).
Because a monopolist must lower the price of all previous units to sell an additional unit of output, the marginal revenue derived from selling one more unit is always less than the price.
2
Compare market structure equilibrium rules to identify the distinguishing feature
Both competitive firms and monopolies maximize profits where MR=MCMR = MC, but only under monopoly is price greater than marginal revenue (P>MRP > MR).
The condition MR<PMR < P reflects the monopolist's market power to act as a price maker.

Anahtar Kavram

Monopoly Demand and Revenue Relationships
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Konular

Monopoly: Characteristics and Sources of Monopoly Power

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