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Microeconomics

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Elasticity: Monopoly's Money

MICRO-9EEWY0

Why will a monopolist (a firm that can choose to set its own price to maximize its profits, and faces no competition) always decide to produce at a point on the demand curve where demand is elastic?

A

Because the monopolist wants to set marginal revenue equal to a positive marginal cost, and marginal revenue is only positive on the elastic part of the demand curve.

B

Because total revenue is maximized on the elastic part of the demand curve.

C

Because marginal revenue is positive on the inelastic part of the curve, and monopolists wish to avoid this.

D

This is incorrect. The monopolist will not always produce on the elastic part of the demand curve.