10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e., the line segment am is equal in length to the line segment bm). Denote the coordinates at point m by (Q*, P*). Now suppose that you overheard a student in ECON 2450 reason in the following manner: |*A profit-maximizing monopoly firm that sells all units that it produces at a uniform price. The firm would never produce more than Q* (or alternatively, will never charge a price below P*) since doing so reduce its total revenue as well as increasing its total cost. Even if the cost of production were negligibly small or even zero, the monopolist's profits would fall if it produced more than Q*." Is this argument correct? If so explain why. If not, explain why not.

10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e., the line segment am is equal in length to the line segment bm). Denote the coordinates at point m by (Q, P). Now suppose that you overheard a student in ECON 2450 reason in the following manner: |A profit-maximizing monopoly firm that sells all units that it produces at a uniform price. The firm would never produce more than Q (or alternatively, will never charge a price below P) since doing so reduce its total revenue as well as increasing its total cost. Even if the cost of production were negligibly small or even zero, the monopolist's profits would fall if it produced more than Q." Is this argument correct? If so explain why. If not, explain why not.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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