question archive Compared to the social optimum, a monopoly firm chooses a
Compared to the social optimum, a monopoly firm chooses a
Subject:MarketingPrice:2.88 Bought3
Compared to the social optimum, a monopoly firm chooses
a. a quantity that is too low and a price that is too high.
b. a quantity that is too high and a price that is too low.
c. a quantity and a price that are both too high.
d. a quantity and a price that are both too low.
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a. a quantity that is too low and a price that is too high.
Reason: The monopolist faces a downward sloping and a relatively inelastic demand curve. The monopolist sets his level of output at the level where the marginal cost is equal to the marginal revenue, but the price is set at a much higher level in the AR curve corresponding to level of MR = MC. Since the MR and the AR are downward sloping curves, the monopoly output is much lesser than the socially optimal output and the monopoly price is much greater than the socially optimal price.
