CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

A monopoly firm selling textbooks to students in a small town is currently maximizing profits by charging a price of $50 per book. It follows that the marginal cost of textbooks is ______.

A. equal to $50
B. less than $50
C. greater than $50
Correct Answer: B

Since marginal revenue is always less than price for a monopolist, and since a monopolist maximizes profits by setting output so that marginal revenue equals marginal cost, it must be true that marginal cost is less than price.

User Contributed Comments 8

User Comment
euniceyew WHY THE ANSWER IS NOT A.
PROFIT MAXIMIZING IS NOT MC=MR?OR THIS IS ONLY A BREAKEVEN POINT?
wulin Profit maximizing output is at where MC=MR. However Price is higher than both MC and MR at that output level. Take a look at the graph again.
mrushdi profit maximizing OUTPUT is where MC=MR, so at this output level P=D is the profit maximizing price, which is > MC.
georgek remember, P<>MR in a monopoly
YOUCANDOIT MR curve lies below the demand curve and monopoly profit-maximizing output is MC=MR, but below price (which is on the demand curve)
dmfz Look at Exhibit 18 of reading 16, and you will see a graph that explians it better.
fzhou MR=MC < P
pigletin it's a good question
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