A Monopolist Faces Linear Inverse Demand P = a -

question 24

Multiple Choice

A monopolist faces linear inverse demand P = a - bQ and constant marginal cost, c. Which of the following gives a correct formula for the monopolist's profit maximizing price?

• A) P = (a/b -
• B) P = a/2.
• C) P = (a+c)/2
• D) P = a/2 + c.

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Definitions:

Excess Capacity

describes a situation where a firm produces less than its total output capacity, usually resulting in inefficiencies and higher production costs.

Economic Profit

The difference between total revenue and total economic costs, including both explicit and implicit costs, reflecting the true profitability of a firm.

Elastic

A characteristic of supply or demand that indicates a high responsiveness to changes in price.

Monopolistic Competitor

A firm operating in a market structure where many companies sell products that are similar but not identical, allowing for some degree of market power and price setting.