Monopoly equilibrium can be reached when (A) marginal cost is rising (...
Monopoly equilibrium can be reached when:
(A) marginal cost is rising
(B) marginal cost is remaining constant
(C) marginal cost is falling
(D) none of these
Explanation:
Monopoly refers to a market structure where there is a single seller and no close substitutes for the product. In a monopoly, the firm has the power to set the price and quantity of the product it sells. The equilibrium point in a monopoly occurs where the firm maximizes its profits.
1. Maximizing Profit:
In a monopoly, the firm aims to maximize its profit. To achieve this, the firm will produce at a level where its marginal revenue (MR) equals its marginal cost (MC). This is because producing any additional unit of output beyond this point would result in a decrease in profit.
2. Marginal Cost and Revenue:
Marginal cost (MC) is the additional cost incurred by the firm to produce one more unit of output. Marginal revenue (MR) is the additional revenue earned by the firm from selling one more unit of output. It is important to note that the marginal revenue in a monopoly is less than the price of the product due to the downward-sloping demand curve.
3. Relationship between Marginal Cost and Revenue:
To determine the equilibrium point, we need to analyze the relationship between marginal cost and revenue. There are three possibilities:
- Rising Marginal Cost: If marginal cost is rising, it means that the cost of producing additional units of output is increasing. In this case, the firm will maximize its profit by producing at a level where marginal revenue is equal to marginal cost. This is because producing beyond this point would result in higher costs than revenue, leading to a decrease in profit.
- Constant Marginal Cost: If marginal cost remains constant, the firm will still maximize its profit by producing at a level where marginal revenue equals marginal cost. This is because the firm can continue to produce additional units as long as marginal revenue is greater than marginal cost, resulting in an increase in profit.
- Falling Marginal Cost: If marginal cost is falling, it means that the cost of producing additional units of output is decreasing. In this case, the firm will maximize its profit by producing at a level where marginal revenue equals marginal cost. Producing beyond this point would result in higher revenue than costs, leading to an increase in profit.
Conclusion:
Based on the above analysis, we can conclude that monopoly equilibrium can be reached when marginal cost is rising, remaining constant, or falling. Therefore, the correct answer is (D) none of these. The specific conditions for equilibrium will depend on the specific marginal cost and revenue functions of the firm.
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