What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?
When demand is inelastic, quantity demanded changes by a smaller percentage than does the price. As a result, a firm could increase total revenue simply by reducing output and raising price. At the same time, reducing output reduces total production costs. If total revenue rises and total costs fall, profit increases. Therefore, a profit-maximizing monopolist should reduce output and increase price until it is no longer operating along the inelastic portion of the demand curve. Rather, a profit-maximizing monopolist will always operate along the elastic portion of the demand curve.
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When the Fed buys $100 million of securities from a commercial bank the
A) required reserve ratio decreases. B) monetary base increases. C) bank's reserves decrease. D) bank is risking its depositors' money. E) money supply decreases.
Refer to Figure 4-4. At a price of $18 consumers are willing to buy 40 pounds of tiger shrimp. Is this an economically efficient quantity?
A) Yes, because $18 shows what consumers are willing to pay for the product. B) No, the marginal benefit of the 40th unit exceeds the marginal cost of that 40th unit. C) Yes, otherwise consumers would not buy 40 units. D) No, the marginal cost of the 40th unit exceeds the marginal benefit of the 40th unit.