A Monopolist Sets Both Price and Quantity Simultaneously, and the Amount

question 260

Multiple Choice

A monopolist sets both price and quantity simultaneously, and the amount of output that it supplies depends

• A) only on the marginal cost curve.
• B) only on the demand curve.
• C) on both its marginal cost curve and the demand curve that it faces.
• D) on both its average cost curve and the demand curve that it faces.

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Definitions:

Cost of Capital

The cost of funds used for financing a business, calculated as the weighted average of debt and equity costs.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the firm's goal of wealth maximization.

Real Option

The ability to take a course of action that under certain circumstances leads to a benefit. The circumstances that make the action desirable are uncertain, and maintaining the ability to take it requires expenditures before that uncertainty is resolved. Hence, bearing the preliminary cost gives one the option of taking an action in the future that may or may not turn out to be desirable.

Expected NPV

The anticipated Net Present Value of an investment, which estimates the project's profitability by discounting future cash flows to their present value.