All the following statements regarding monopolies are true E

All the following statements regarding monopolies are true EXCEPT:

Monopolies maximize profit where marginal revenue equals marginal cost.

Marginal revenue is equal to price at the profit maximizing point.

Monopolies have potential for long-run economic profits.

Monopolies are not always profitable.

Solution

Marginal revenue is equal to price at the profit maximizing point.

Monopoly is a form of market in which there exist only a single seller who sold goods which does not have close substitutes. There is barrier in the entry of new firms. Under monopoly, the firm is a price maker because it can fix the price for its product. It has free control over the supply of the product. A monopolist firm faces a market demand curve which is negatively sloped. It means that the firm will have to reduce the price to increase its sale. Demand curve of a firm under monopoly is less elastic because the product has no close substitutes. Railways in India are a monopoly industry of the Government of India. Since, there is only one producer of a product in the market, the distinction between firm and industry disappears.