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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Compared to the social optimum, a monopoly firm chooses

a. a quantity that is too low and a price that is too high.

b. a quantity that is too high and a price that is too low.

c. a quantity and a price that are both too high.

d. a quantity and a price that are both too low.

To determine
The level of output and price under monopoly firm.

Explanation

Option (a):

The monopoly firm opts to produce goods in low quantity to create a shortage in the market, which increases the prices. Thus, option ‘a’ is correct.

Option (b):

Since the monopoly firm produces a large quantity of goods, the cost will be higher. This discourages the firm to increase the outputs...

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