Question

A profit-maximizing monopolist will set its price:

1 as far above ATC as possible.

2 along the elastic portion of its demand curve.

3 where the marginal cost curve intersects the demand curve.

4 as close as possible to the minimum point of ATC

Answer 1

A profit-maximizing monopolist will set its price along the elastic portion of its demand curve. Thus the correct answer is option 2.

What is monopolist?

When any market is ruled and regulated by individual identity  for a particular commodity or service is referred to as a monopolist. Due to the absence of alternatives and competition, the monopolist is able to set high prices because they have sufficient market power.

The decision that will maximise profits for the monopoly is to produce at the level of output where marginal revenue equals marginal cost. This market monopolist will set their prices based demand curve proportion of elasticity.

Therefore, option 2 along the elastic portion of its demand curve is the appropriate answer.

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