In the short-run, when a simple monopoly firm attains equilibrium and earns only normal profit, its level of output will correspond to :
Marginal cost much below average cost
Equilibrium of a monopolist requires MR = MC (with MC cutting MR from below). Normal profit means price (AR) just equals average cost at that output, so the AR curve is tangent to the AC curve.
The monopolist’s AR curve slopes downward, so the tangency with AC must lie on the falling part of the AC curve, i.e. to the left of the minimum point of AC (output below the optimum).
On the falling part of the AC curve, MC lies below AC. Hence at this equilibrium output marginal cost is well below average cost.
Lowest average cost and AC = MC both describe the minimum point of AC, which a downward-sloping AR curve cannot touch, so they do not describe this equilibrium.
Hence, the answer is Marginal cost much below average cost.
Similar Questions
The following are the demand and supply equations in a perfectly competitive market :
\(P = 12 + 0.3\ Q_s\)
\(P = 40 - 0.4\ Q_d\)
The equilibrium market price would be :
In case of short-run equilibrium, a perfectly competitive firm while earning abnormal profits operates at an output level where :
For the following two statements of Assertion (A) and Reasoning (R) indicate the correct code :
Assertion (A) : All firms under perfect competition in long run earn only normal profit.
Reasoning (R) : All firms under perfect competition in long run operate at the minimum average cost level.
Codes :
Match the following :
List – I List – II (i) Dumping (a) Monopolistic competitive firm (ii) Kinked Revenue Curve (b) Oligopoly firm (iii) Horizontal straight line revenue curve (c) Perfectively competitive firm (iv) Large number of buyers and sellers with differentiated products (d) Discriminatory monopoly Codes :
(i) (ii) (iii) (iv)
The equilibrium level of output for a perfect competitive firm is given by the point where :
Assertion (A) : A monopoly firm’s revenue curve is downward sloping from left to right.
Reason (R) : The monopoly firm does not simultaneously enjoy the freedom to determine both price and quantity to be sold according to its whims and fancy.
Codes :
Assertion (A) : In long run under Perfect Competition all firms invariably get only normal profit.
Reason (R) : All firms incur minimum average cost and incur no selling cost due to absence of product differentiation.
Codes :
Monopolists prefer to sell the products in the markets with
Assertion (A) : A perfectly competitive firm is not a price-maker but is a price-taker.
Reason (R) : The firm is interested in deciding the level of output only.
Codes :
Important Questions from Price determination under different market forms
‘Oligopoly’ refers to:
Which of the following statements are true regarding price and output determination under perfect competition?
A. A firm is a price taker
B. In the long run, a firm is in equilibrium when its AR = MR = LAC = LMC
C. A firm is in equilibrium in the short run only when its AC = AR = MR = MC
D. A firm reaches its shut-down point when price goes below its AC
E. A firm fixes the price of its products when AR = MR
Choose thecorrectanswer from the options given below:
Which of the following statements regarding price and output determination under monopoly are correct?
A. A monopoly firm can fix its price anywhere along its demand curve
B. Even during short run when a monopoly firm earns normal profit, it produces less than its optimum capacity
C. The slope of monopoly's MR curve is twice the slope of its AR curve
D. Price discrimination is possible only when demand curves are identical in two markets
E. Equilibrium price of a monopolist is always higher than that of a perfectly competitive firm.
Choose thecorrectanswer from the options given below:
Which of the following statements are false regarding price and output determination under perfect competition?
(A) A firm is a price taker
(B) In the long run. a firm is in equilibrium when its AR = MR = LAC = LMC
(C) A firm is in equilibrium in the short run only when its AC = AR = MR = MC
(D) A firm reaches its shut-down point when price goes below its AC
(E) A firm fixes the price of its products when AR = MR
Choose the most appropriate answer from the options given below:
The demand curve that a firm faces in a perfectly competitive market is perfectly _______________ ; it is a _____________straight line at the market price.
