Part 1How does a single-price monopoly determine the price it will charge its customers? Part 1A single-price monopoly _______. A. produces the quantity at which marginal revenue equals marginal cost and charges the highest price consumers will pay for that quantity from the demand curve B. produces the quantity at which marginal revenue equals marginal cost and sets the price equal to marginal revenue at that quantity C. produces the quantity at which average total cost is minimized and charges the highest price consumers will pay for that quantity from the demand curve D. charges the price from the demand curve that corresponds to the quantity where the price elasticity of demand equals 1

Question

Part 1How does a​ single-price monopoly determine the price it will charge its​ customers? Part 1A​ single-price monopoly​ _______. A. produces the quantity at which marginal revenue equals marginal cost and charges the highest price consumers will pay for that quantity from the demand curve B. produces the quantity at which marginal revenue equals marginal cost and sets the price equal to marginal revenue at that quantity C. produces the quantity at which average total cost is minimized and charges the highest price consumers will pay for that quantity from the demand curve D. charges the price from the demand curve that corresponds to the quantity where the price elasticity of demand equals 1

BlackTom AI · Accepted Answer

Let’s break down what each option is claiming about how a single-price monopoly sets its price and quantity.
Option A: 'produces the quantity at which marginal revenue equals marginal cost and charges the highest price consumers will pay for that quantity from the demand curve.' This aligns with the standard monopoly rule: maximize profit by producing where MR = MC, then charge the price on the demand curve corresponding to that quantity, which is the highest price that consumers are willing to pay for that quantity. This correctly captures both the MR=MC profit-maximizing output and the associated higher price implied by the demand curve.
Option B: 'produces the quantity at which marginal revenue equals marginal cost and sets the price equal to marginal revenue at that quantity.' Here the price is not set equal to MR; price is set from the demand curve at the chosen quantity. Setting price equal to MR would understate the price, because MR is below price for a downward-sloping demand curve. This misrepresents how price is determined in monopoly output.
Option C: 'produces the quantity at which average total cost is minimized and charges the highest price consumers will pay for that quantity from the demand curve.' Minimizing average total cost yields the output level of productive efficiency, not the profit-maximizing level for a monopolist. A monopoly typically produces where MR = MC, not where ATC is minimized, so this is inconsistent with monopoly pricing.
Option D: 'charges the price from the demand curve that corresponds to the quantity where the price elasticity of demand equals 1.' The point where elasticity is 1 (unit elastic) does not generally determine monopoly profit-maximizing output. In monopoly theory, MR = MC determines output, and the price is then read off the demand curve for that output. Elasticity being 1 is a property of the demand curve at a particular point, not a rule for setting MR = MC.
Overall, option A accurately describes the standard approach: choose the output where MR = MC and charge the price from the demand curve that corresponds to that quantity, which yields the highest price consumers will pay for that quantity. The other options either misconstrue the MR=MC decision rule, confuse cost minimization with profit maximization, or misapply elasticity in setting price.

Homework:ch13_homework

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