question_answer

Giving reasons, state whether the following statements are true or false:

(i) A monopolist can sell any quantity he likes at a price.

(ii) When equilibrium price of a good is less than its market price, there will be competition among the sellers.

Answer:

(i) The statement is false. The price is fixed at a point where marginal cost is equal to marginal revenue. If a monopolist fixes a price less or more than the price fixed at equilibrium point, the quantity will be more or less than the equilibrium quantity but not the quantity that a monopolist would like to sell.

(ii) The statement is true. In this situation, market price is higher than the equilibrium price. As a result of which supply will be more than demand. As such there will be competition among the sellers. In other words, sellers would like to sell their entire quantity to meet the demand which (supply) is much more than the demand.