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IAI Actuarial Core Principles · Business Economics · Profit maximisation under imperfect competition

Compared with a perfectly competitive industry with the same costs, a profit-maximising single-price monopoly will typically:

A single-price monopoly typically produces less output at a higher price than a competitive industry. Its marginal revenue lies below price, so equating marginal revenue with marginal cost gives a smaller quantity, and the demand curve then supports a higher price.

  1. AProduce more output at a lower price
  2. BProduce less output at a higher priceCorrect
  3. CProduce the same output at a higher price
  4. DProduce less output at the same price
  5. Produce at the minimum point of average cost

Explanation

Because marginal revenue is below price, the monopolist equates MR to MC at a lower output than the competitive P = MC point. The demand curve then gives a higher price, creating a deadweight loss. The same-output options ignore this MR-below-price effect.

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