Question

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The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. Price (5/unit) O NABONN ONA 1 2 MRD 3 4 5 6 7 8 Quantity (units/day) 9 10 The socially optimal level of output is: Multiple Choice O 8 units per day O 10 units per day. 5 units per day. 4 units per day.

Answer 1

Answer : 1) The answer is option A.

Socially optimal output level is that output level where D = MC occur. Here at output level of 8 units per day D = MC occurs. So, here the socially optimal output level is 8 units per day. Therefore, option A is correct.

2) The answer is option A.

The monopolist's profit maximizing output level is that output level where MR = MC occur. Here at output level of 4 units per day MR = MC occurs where the price is $18. Therefore, option A is correct.

3) The answer is option D.

Fast food restaurants are the example of monopolistic competitive market. Fast food restaurants are not the example of natural monopoly. Therefore, option D is correct.