Question

A monopolist's revenues vary directly with price. Is it maximizing its economic profits? Why or why not? (Hint: Recall that the relationship between revenues and price depends on price elasticity of demand.)

Short answer

The introduction of new products and services into markets expands the market supply of products. All resources are still in short supply. As firms exit the market, the quantity supplied increases. When company supply is limited, price increases are common.

Step-by-step solution

Introduction.

A monopolist is a person, group, or company that controls the entire market for a specific good or service. A monopolist is likely to support policies that benefit monopolies because it gives them more power.

New companies are breaking into the market.

The introduction of new firms into the incredible economic the supply of goods and services.

As supply grows, the price drops just under the minimum average cost, and firms begin to lose economic profit. As an outcome, small entrants entering the market lose economic profit.

Monopolist revenue varies directly with price.

Due to negative economic profit, firms in the industry would begin to leave the industry. When businesses leave the industry, the market supply expands. Reduced market supply tends to raise the prices of goods and services.