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A monopolist will fix the equilibrium output of his product where the elasticity of his average revenue curve is:

A. Less than one

B. Equal to one

C. Greater than one

D. Less than one

Correct Answer : C.


AR curve of monopolist is a downward sloping curve .This is also called demand curve for monopolist showing different level of elasticities of demand. At the mid point of the AR curve, elasticity of demand is equal to one and above the mid point, elasticity is greater than one and below the mid point elasticity is less than one .A monopolist fix the amount of his product at a level where the elasticity of his AR curve (Demand Curve) is greater than one. It causes total revenue to increase because here demand is elastic and a small decline in price will bring a large increase in total revenue.}

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