Answer true or false and explain:

A rational monopolist would never choose to operate at a point where P = 20 and MR = -4.

• The statement is true

The monopolist will seek to maximize his level of profits in the market. In order to do so, it will produce the level of output at the point where the marginal revenue equals the marginal cost. The monopolist will not choose to produce at the point where MR is negative, because when MR is negative, the TR will be in a falling position. In case the marginal cost is zero, the firm will maximize its profit when the marginal revenue intersects the x-axis. Since the marginal cost can never be negative, it does not make sense that it will intersect the marginal revenue in the negative range. Hence a rational monopolist will never produce at the level where the marginal revenue is negative.