Monopoly power does not guarantee positive profits because _____.
A)demand elasticity in monopoly markets is relatively low
B)monopoly firms are price takers
C)sales and profits of monopoly firms are restricted by the demand curve
D)the monopolist's demand curve is the same as the marginal revenue curve

Question

Quizplus · Accepted Answer

Monopoly power allows the firm to restrict the quantity produced and raise the price, resulting in higher profits. However, the demand curve limits the sales and profits of the monopolist. The monopolist cannot charge any price above the equilibrium level because there will be no demand. Moreover, the demand elasticity in monopoly markets is relatively high, i.e., the consumers are more sensitive to price changes. Hence, the monopolist may have to lower the price to increase sales, resulting in lower profits.

Monopoly Power Does Not Guarantee Positive Profits Because _____