Asked by Genelyn Silva on Jul 23, 2024
Verified
Which of the following statements is correct?
A) The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero.
B) In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.
C) The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest.
D) Purely monopolistic sellers earn only normal profits in the long run.
Pure Monopolist
A single seller in a market that sells a unique product with no close substitutes, controlling the market price.
Underallocates Resources
A situation where resources are not distributed efficiently, leading to potential waste and underproduction.
Demand Curve
A graph representing the relationship between the price of a good and the quantity demanded by consumers at various prices.
- Acquire an understanding of the productive and allocative efficiency concepts as they apply to monopoly and competitive market structures.
- Investigate the impact of price elasticity of demand on the pricing approaches and competition among firms.
Verified Answer
AS
Ayush SinghJul 26, 2024
Final Answer :
B
Explanation :
B) In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production. This is because monopolists produce where marginal revenue equals marginal cost, which typically occurs at an output level less than what would be produced in a perfectly competitive market, leading to underallocation of resources.
Learning Objectives
- Acquire an understanding of the productive and allocative efficiency concepts as they apply to monopoly and competitive market structures.
- Investigate the impact of price elasticity of demand on the pricing approaches and competition among firms.