Suppose a Lazy Monopolist's Fixed Costs Are Lower Than the Fixed

question 18

Multiple Choice

Suppose a lazy monopolist's fixed costs are lower than the fixed costs of an efficient monopolist. In all other respects, the monopolists are the same. Which of the following statements about this monopolist is true?

• A) It charges a higher price than the monopolist producing efficiently.
• B) It charges a lower price than the monopolist producing efficiently.
• C) Its total revenue is the same as the monopolist producing efficiently.
• D) It produces less than the monopolist producing efficiently.

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Definitions:

Discount Rate

The interest rate used to determine the present value of future cash flows or to evaluate the attractiveness of an investment.

Opportunity Cost

The cost of an alternative that must be forgone in order to pursue a certain action, essentially the benefits you could have received by taking another course of action.

EVA

Economic Value Added, a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit.

Operating Income

This metric reflects the profits earned from a company's core business operations, excluding non-operating income and expenses.