For a monopoly firm,
A)price always exceeds average revenue.
B)price always exceeds marginal revenue.
C)any price-quantity combination will maximize profits.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

In a monopoly, the firm is the only supplier of a product or service, giving it the power to set the price. The firm's goal is to maximize profits, so it will produce and sell the quantity where marginal revenue equals marginal cost. Since the demand curve is downward sloping, the firm must lower the price in order to sell more units. This means that the price will always be less than or equal to the average revenue, and may be less than marginal revenue if the demand curve is highly elastic. However, the firm will want to produce and sell the quantity where marginal revenue equals marginal cost, which is where it is maximizing profits. Therefore, choice B is correct.

For a Monopoly Firm