A monopolist will always end up choosing to operate
A) even if its profits are negative.
B) on the elastic portion of its demand curve.
C) until such time as a new competitor enters its market.
D) only if it can capture the entire consumer surplus.

Question

Quizplus · Accepted Answer

A monopolist will always choose to operate at a point where marginal revenue (MR) equals marginal cost (MC) in order to maximize its profits. However, on the elastic portion of its demand curve (where demand is relatively responsive to price changes), the monopolist must lower its price significantly to sell one more unit, causing a decrease in its total revenue. As a result, the monopolist will strive to operate on the inelastic portion of the demand curve (where demand is relatively unresponsive to price changes) to maximize its profits. Therefore, the correct answer is B.

A Monopolist Will Always End Up Choosing to Operate