Question

Suppose that a producer in a previously competitive market is granted the sole right to produce in the market. Given that demand in the market is unchanged, but now all consumers must purchase from the same producer, which of the following statements are correctly describing the producer before and after becoming a monopoly? Instructions: You may select more than one answer. 1. Price equals marginal revenue (MR) before becoming a monopoly. 2. Price equals marginal revenue (MR) after becoming a monopoly. 3. The producer will produce the same level of output before and after becoming a monopoly. 4. The producer will produce the efficient level of output only before becoming a monopoly. 5. The producer will produce the output where MR MC both before and after becoming a monopoly.6. Marginal revenue (MR) is less than price after becoming a monopoly.

Answer 1

The answers are: option 1,5,6

Step-by-step explanation:

Competitive market or perfect competition is the type of market that has many sellers and many buyers. No one can influence the price of goods and services in the market and the products are identical or similar. The demand curve is horizontal. The sellers are price-taker s.

On the other hand, monopoly has only one seller and many buyers. The demand curve is downward sloping. Monopolist is a price-searcher or price-setter.

Pricing strategy:

For competitive market, profit-maximization is at the point where price equals marginal revenue equals marginal cost i.e P =MR = MC.

But for monopoly, For competitive market, profit-maximization is at the point where marginal revenue equals marginal cost but price is greater than both marginal revenue and marginal cost.i.e P > MR = MC

With this explanation, we can answer the question:

Option 1 is correct

Option 5 is correct (where MR=MC)

Option 6 is correct