10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e., the line segment am is equal in length to the line segment bm). Denote the coordinates at point m by (Q*, P*). Now suppose that you overheard a student in ECON 2450 reason in the following manner: |*A profit-maximizing monopoly firm that sells all units that it produces at a uniform price. The firm would never produce more than Q* (or alternatively, will never charge a price below P*) since doing so reduce its total revenue as well as increasing its total cost. Even if the cost of production were negligibly small or even zero, the monopolist's profits would fall if it produced more than Q*." Is this argument correct? If so explain why. If not, explain why not.
10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e., the line segment am is equal in length to the line segment bm). Denote the coordinates at point m by (Q*, P*). Now suppose that you overheard a student in ECON 2450 reason in the following manner: |*A profit-maximizing monopoly firm that sells all units that it produces at a uniform price. The firm would never produce more than Q* (or alternatively, will never charge a price below P*) since doing so reduce its total revenue as well as increasing its total cost. Even if the cost of production were negligibly small or even zero, the monopolist's profits would fall if it produced more than Q*." Is this argument correct? If so explain why. If not, explain why not.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.5P
Related questions
Question
Transcribed Image Text:10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (Q.a)
and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e.,
the line segment am is equal in length to the line segment bm). Denote the coordinates at point
m by (Q*, P*). Now suppose that you overheard a student in ECON 2450 reason in the
following manner: A profit-maximizing monopoly firm that sells all units that it produces at a
uniform price. The firm would never produce more than Q* (or alternatively, will never charge a
price below P*) since doing so reduce its total revenue as well as increasing its total cost. Even if
the cost of production were negligibly small or even zero, the monopolist's profits would fall if it
produced more than Q*."
Is this argument correct? If so explain why. If not, explain why not.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
