CFA Practice Question

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CFA Practice Question

A profit-maximizing monopoly will produce an output where demand ______

A. is inelastic.
B. is unitary elastic.
C. has a zero elasticity.
D. is elastic.
Correct Answer: D

User Contributed Comments 4

User Comment
geofin "This must be so because marginal revenue and marginal cost will always intersect where marginal revenue is positive. This fact implies that quantity demanded responds more than proportionately to prices changes, i.e. demand is elastic, at the point at which MC = MR."

CFA Institute. Level I Volume 2 Economics, 7th Edition. Pearson Learning Solutions. page 195.
gill15 I thought it was maximized when it is at the point of unit elasticity....

or is this question just asking in general where a monoopoly will produce
khalifa92 if demand is inelastic the monopolist will just cut production and increase price instead to bring it back up to elasticity.
Huricane74 @khalifa92, thank you for your comment.

Here is another way to look at khalifa's comment.

A monopoly can raise the rise of a product until people decide they no longer want to purchase it as the price it is being offered. At the price point where people choose to forgo the product offered by the monopoly, the price becomes elastic.
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