Q.At equilibrium in the monopoly market, the value of price elasticity is—
(A) zero
(B) more than 1
(C) less than 1
(D) 1.

A profit-maximising monopolist always operates on the elastic portion of its demand curve, where price elasticity of demand exceeds 1 — never on the inelastic portion.

The relationship between marginal revenue, price and elasticity of demand is MR = P(1 − 1/e), where e is the (absolute) price elasticity of demand.

• If e < 1 (inelastic), the term (1 − 1/e) is negative, so MR would be negative. A rational monopolist would never produce at an output where marginal revenue is negative, because it could raise profit simply by producing less and charging more.
• If e = 1 (unit elastic), MR = 0.
• If e > 1 (elastic), MR is positive. …

In monopolistic competition, each firm sells a 'differentiated' product — close to, but not identical to, rivals' products.

Monopolistic competition is a market form with a large number of sellers (like perfect competition) but, unlike perfect competition, the products are NOT homogeneous — each firm differentiates its product through branding, packaging, perceived quality, after-sales service, location, or advertising (think of toothpaste brands, shampoos, or restaurants). Because buyers see these products as close substitutes but not perfect substitutes, each firm's demand cu …

Lerner's Index of monopoly power is correctly defined as (P − MC)/P — True. But 'P = MC at monopoly equilibrium' is False; monopoly equilibrium requires MR = MC, and since P > MR for a monopolist, P > MC at equilibrium.

Main statement: Abba Lerner defined the degree of monopoly power as the gap between price and marginal cost, expressed as a fraction of price:

Degree of monopoly power = (P − MC) / P

A higher value (closer to 1) indicates greater monopoly power (price far above marginal cost); a value of 0 indicates no monopoly power at all (price equals marginal cost, as under perfect competition). This is a standard, correctly stated formula, so the statement is True.

…

A monopolist's equilibrium condition, exactly like any firm's, is MR = MC; because the monopolist faces a downward-sloping demand curve, price is greater than MR (and hence greater than MC) at equilibrium.

Every profit-maximising firm, whatever the market structure, sets output where Marginal Revenue (MR) equals Marginal Cost (MC) -- this is the universal first-order condition of profit maximisation. What differs across market structures is the relationship between price and MR:

• In perfect competition, the firm is a price-taker facing a horizontal demand curve, so P = MR, and the equilibrium condition MR = MC can also be written as P = MC. …

The monopolist's demand curve is downward sloping, same slope as the market demand curve, because the monopolist IS the industry.

Since a monopoly firm is the only seller, the demand curve it faces is the entire market demand curve for the commodity, which obeys the normal law of demand — more is bought only at a lower price. Unlike a perfectly competitive firm (which faces a horizontal demand curve at the market price) …

Both statements are standard, correct definitions - product differentiation with many close substitutes defines monopolistic competition, and few sellers facing many buyers defines oligopoly.

Main statement. Monopolistic competition is a market structure with a large number of firms, each selling a product that is differentiated from its rivals' (through brand name, design, quality or packaging) but which still has many close substitutes available from other firms in the same industry (for example, different brands of toothpaste or soap). This product differentiation gives each firm a degree of control over its own price, but the presence of many close substitutes keeps that control limited. The statement is therefore True.

…

Price always equals average revenue for any seller, including a monopolist; and because a monopolist faces the whole market demand curve, that curve is always downward sloping.

Main blank. Average revenue is defined as total revenue divided by quantity sold (AR = TR/Q), and since total revenue is price multiplied by quantity (TR = P x Q), AR always works out to exactly the price (AR = P x Q/Q = P). This identity - price always equals average revenue - holds true for every type of seller, whether in perfect competition or monopoly; what differs for a monopolist is that marginal revenue is LESS than price (and so less than AR), unlike in perfect competition where price, AR and MR all coincide.

…

Price always equals Average Revenue, for a monopolist exactly as for any other seller.

Average Revenue (AR) is defined as Total Revenue divided by Quantity sold: AR = TR / Q = (Price × Quantity) / Quantity = Price. This identity (Price = AR) holds true in EVERY market structure, including monopoly, because it is simply how AR is defined — it is always the per-unit revenue, which is the selling price itself.

…