Under What Conditions Can a Monopolist Have Potentially Lower Costs

question 186

Multiple Choice

Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?

• A) when the monopolist operates on the inelastic portion of the demand curve
• B) when the monopolist is a profit maximizer rather than a revenue maximizer
• C) when substantial diseconomies of scale are present
• D) when substantial economies of scale are present

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Definitions:

Variable Manufacturing Overhead

Costs that fluctuate with the level of production, such as utilities or indirect materials, but are still related to the manufacturing process.

Machine-Hour

A unit of measure representing an hour of operation of a machine, used in calculating manufacturing costs and overhead rates.

Fixed Manufacturing Overhead

Costs associated with the production process that do not vary with the volume of production, such as factory rent.

Variable Overhead Efficiency Variance

The difference between the actual variable overheads incurred and the standard cost of those overheads for the actual production level.