Question 20
Market StructuresWhich of the following is applicable to a monopolistic firm operating at the output where marginal cost equals marginal revenue?
- A.Cost of production is at a minimum
- B.The plant is of optimum size
- C.Price is above marginal revenue
- D.Average variable cost is at a minimum
Show the answer and explanation
Answer: C (Price is above marginal revenue)
Explanation
A monopolist faces a downward-sloping demand curve, so its marginal revenue is below price; at MC = MR, price is greater than MR.