Re: ISI Interview Question

Posted by Asd1995 on Jun 19, 2017; 4:47am
URL: http://discussion-forum.276.s1.nabble.com/ISI-Interview-Question-tp7605699p7605847.html

No, there can be cases where monopolist charges P<MC (say he gets more ad revenue depending on quantity produced etc)

The profit maximising condition for a monopolist is MR=MC

For e<1, MR<0. Given returns to scale are <=1, average costs will increase with higher production, so marginal costs must be positive. Hence MR=MC cannot be true at that point. Refer to Hal Varian for a detailed proof.