Monopoly Firm Cost Analysis

Questions and Answers

Why can the profit maximizing level of quantity supplied only lie on the upward sloping part of the marginal cost curve?

Because beyond that point, the cost of producing additional units will decrease while the market price remains fixed, leading to increased profits.

What is the significance of the point at which the marginal cost curve has a negative slope?

It is not rational to produce at that level of output because the cost of producing additional units will decrease while market price remains unchanged.

When is producing nothing a better option in the short run for a firm?

Producing nothing may be better if it results in lesser loss than the decision to produce.

Why is equating price with marginal cost only a necessary condition for profit maximization?

Because even though profit is maximized when price equals marginal cost, it does not ensure that profit is maximized. Signup and view all the answers

What does the firm need to consider in order to maximize profit in a monopoly market?

The firm needs to consider both marginal revenue and marginal cost to maximize profit. Signup and view all the answers

What is the relationship between average cost and marginal cost in terms of profit maximization?

For profit maximization, the firm should produce at a level where marginal cost equals average cost. Signup and view all the answers

What is marginal cost?

The additional cost the firm incurs from producing and selling one more (or a few more) units of output. Signup and view all the answers

Explain why marginal revenue is zero at a quantity of 7 for a monopoly.

Marginal revenue is zero at a quantity of 7 because that is the point where the firm maximizes its total revenue before it starts declining. Signup and view all the answers

Why does marginal revenue turn negative for a monopoly at quantities higher than 7?

Marginal revenue turns negative because to sell more output, the monopolist must cut the price, leading to a situation where more sales bring in less revenue. Signup and view all the answers

What type of average cost curve does a monopoly typically face?

A monopoly typically faces a U-shaped average cost curve. Signup and view all the answers

Where is maximum profit possible for a monopoly according to the content?

Maximum profit is possible where the marginal cost curve intersects the marginal revenue curve. Signup and view all the answers

What happens to marginal revenue as a monopoly sells additional units of output?

Marginal revenue decreases as a monopoly sells additional units of output. Signup and view all the answers

What rule should a profit-maximizing monopoly follow in terms of quantity production?

Producing up to the quantity where marginal revenue is equal to marginal cost (MR = MC). Signup and view all the answers

How can a profit-maximizing monopoly easily identify the optimal quantity of output?

By producing where marginal revenue equals marginal cost (MR = MC). Signup and view all the answers

Define marginal cost and its role in profit maximization for a monopoly.

Marginal cost is the change in total cost from producing a small amount of additional output. It helps in determining the profitability of each additional unit produced. Signup and view all the answers

What is the significance of marginal profit in the context of a monopoly's profit maximization?

Marginal profit is defined as marginal revenue minus marginal cost. Total profit is the sum of marginal profits. Signup and view all the answers

Where is total profit maximized for a monopoly?

Total profit is maximized where marginal revenue equals marginal cost (MR = MC). Signup and view all the answers

At what point does a perfectly competitive firm find its profit-maximizing level of output?

A perfectly competitive firm also finds its profit-maximizing level of output where marginal revenue equals marginal cost (MR = MC). Signup and view all the answers

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