Question

which of the following statements is/are true? group of answer choices a good measure of market power is the elasticity of the demand curve facing the firm. the more inelastic the demand curve, the greater the ability of the monopolist to raise prices by restricting output. for output levels just above the profit maximizing equilibrium output, the mb is greater than mc. therefore, there is cash on the table in a pure monopoly equilibrium. price discrimination is a way for the monopolist to appropriate some of the cash on the table that arises in a pure monopoly equilibrium. a monopoly faces the entire market demand curve for the product. a monopolist may earn a negative economic profit in the short run. if a pure monopolist wishes to sell more it must reduce the price of the product. a perfectly competitive firm, on the other hand, can sell as much as it wishes at the current price.

Answer 1

A measure of market power is the inelasticity of a monopolist's demand curve, enabling higher prices. At the monopoly equilibrium, no 'cash on the table' exists as the firm maximizes profit where MB=MC. Monopolies and perfectly competitive firms experience different demand curves, affecting their pricing and sales strategies.

Step-by-step explanation:

The student's question revolves around distinguishing between different market structures and the implications of market power, demand elasticity, and profit maximization. We can dissect this into a few key areas:

• Market Power and Demand Elasticity: The elasticity of the demand curve a firm faces is indeed indicative of market power, particularly in monopoly settings. A more inelastic demand curve strengthens a monopolist's ability to raise prices without significantly reducing quantity sold, thereby enhancing the firm's market power.
• Monopoly Equilibrium: At the profit-maximizing equilibrium, a monopolist produces where marginal benefit (MB) equals marginal cost (MC). Any quantity beyond this point would mean MB < MC, suggesting the firm should not increase production further, as it would diminish profits. Hence, there is no 'cash on the table' at equilibrium.
• Price Discrimination: Through price discrimination, a monopolist may indeed capture some consumer surplus, which is typically left on the table under single-pricing strategies, by charging different prices to different groups or for different units based on their willingness to pay.

A monopoly, by nature, does face the entire market demand curve, and a monopolist can earn negative economic profits in the short run if costs exceed revenues. However, monopolies can maintain supernormal profits in the long run due to barriers to entry. Lastly, a perfectly competitive firm can sell any amount of its product at the market price, unlike a monopolist, which must reduce prices to increase sales due to the downward-sloping demand curve it faces.