In the short run a pure monopolist will charge the highest price the market will bear for its product

In the short run a pure monopolist will charge the highest price the market will bear for its product.

True

False

The correct answer and explanation is:

The correct answer is False.

In the short run, a pure monopolist will not necessarily charge the highest price the market will bear for its product. Instead, the monopolist will aim to maximize profit by selecting a price and output level where marginal cost (MC) equals marginal revenue (MR). This is because, unlike a perfectly competitive firm, a monopolist is the sole supplier of a product and faces a downward-sloping demand curve. The monopolist can influence the market price, but it cannot charge an arbitrarily high price without reducing demand for its product.

In the short run, the monopolist evaluates the price and quantity combination that yields the highest profit. This decision depends on several factors such as the elasticity of demand, the cost structure of the firm, and the potential for profit maximization. If the monopolist charges too high a price, demand will decrease significantly, leading to lower total revenue. Similarly, if the price is set too low, while demand may increase, the monopolist risks earning insufficient revenue to cover its costs, leading to reduced profits.

Therefore, although a monopolist has the market power to set prices higher than what would occur under perfect competition, it will still consider consumer demand and cost factors when determining the optimal price in the short run. The goal is to balance price and quantity to maximize profit, not necessarily to charge the highest possible price.