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      Question

      A profit-maximizing monopolist sets an output of 100 per

      day and a price of £10. Which of the following statements is true?
      A The firm's SMC and MR curves intersect at an output of 100, and the point on its demand curve at this output is at £10 Correct Answer Incorrect Answer
      B The firm's SMC and MR curves intersect at an output of 100, and the point on its MR curve at this output is at £10. Correct Answer Incorrect Answer
      C The firm's SMC and AR curves intersect at an output of 100, and the point on its MR curve at this output is at £10. Correct Answer Incorrect Answer
      D The firm's SMC and AR curves intersect at an output of 100, and the point on its AR curve at this output is at £10. Correct Answer Incorrect Answer

      Solution

      Statement a is true. The intersection of SMC and MR is always best, unless it results in a loss that exceeds the firm's total fixed costs, in which case it is better to shut down and produce nothing. To find the price a price-setter must set, we always look at the point on its demand curve at the output it wishes to sell.

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