Question

a.) When a monopolist chooses the output that maximizes profits, we know that MR - MC, and also that P > MR. This is inefficient because

1. The monopolist is the only producer in the market

2. The monopolist fails to make transactions where the marginal benefit is greater than the marginal cost

3. There are entry barriers

4. The monopolistic is not minimizing costs

b.) A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.00 per unit. The marginal revenue of the 151 unit of output is

1. -$5.10

2. -$0.10

3. $5.10

4. $2.45

Answer 1

a)	The FIRST option is correct.
	The monopolist is the only producer in the market
	Explanation: Monopoly market is the market where there is the only producer in the market
		Hence there is no competitor in the market. Monopolist is free to choose
		the market price of the product. Hence MR - MC, and also that P > MR theory is
		inefficient for the monopolist market.
b)	Marginal revenue per unit
	= Revenue for 151 units - revenue for 150 units /150 units
	= (151*9) - (150*10) / 150 units
	=-$0.10
	Therefore second option is correct