At the profit maximizing level of output for a monopolist: a. P = AR and AR = AC. b. P > MC and...

Question:

At the profit maximizing level of output for a monopolist:

a. P = AR and AR = AC.

b. P > MC and MR = MC

c. P = MC and MR > MC.

d. P = MR and AC = MC

Holding supply conditions constant, the costs of regulation fall wholly on producers when :

a. Ep=1

b. Ep>1

c. Ep={eq}\infty {/eq}

d. Ep=0

When Ep=-2, the optimal markup on price is :

a. 100%

b. 67%

c. 50%

d. 33%

Markup

Markup refers to the percentage difference of the product?s selling price and the respective cost whose reference is the cost of production. It shows the extent of the attainment of the extra gains incurred by the firms.

Answer and Explanation:

1. At the profit-maximizing level of output for a monopolist b. P > MC and MR = MC .

It is because the producer maximizes his profit at the equality of the marginal revenue and the marginal cost. Also, being a single seller, the output is sold in order to make positive economic profits which enables the higher value of the price relative to its marginal cost.

2. Holding supply conditions constant, the costs of regulation fall wholly on producers when c. Ep=?? .

It is because the infinite elastic supply implies the change in supply due to no change in price which is totally regulated by the producers. Thus, each supply decision is mainly taken by the producers themselves.

3. When Ep=-2, the optimal markup on price is c. 50% .

It is because the optimal markup on the price would be,

{eq}\begin{align*} {\rm{ = }}\frac{{{\rm{ - 1}}}}{{{{\rm{E}}_{\rm{p}}}}}{\rm{ \times 100}}\\ {\rm{ = }}\frac{{{\rm{ - 1}}}}{{{\rm{ - 2}}}}{\rm{ \times 100}}\\ {\rm{ = 50\% }} \end{align*} {/eq}


Learn more about this topic:

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How to Calculate Markup: Definition & Formula

from Principles of Marketing: Help and Review

Chapter 12 / Lesson 22
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