Question
Show mathematically that a monopolist always sets its price above marginal cost.
Answers
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Let P be the price set by the monopolist and MC be the marginal cost.
By definition, a monopolist is the only producer in the market, so it has the market power to set the price.
Therefore, P > MC
Mathematically, this can be expressed as:
P - MC > 0
By definition, a monopolist is the only producer in the market, so it has the market power to set the price.
Therefore, P > MC
Mathematically, this can be expressed as:
P - MC > 0