Question

Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true?(A) Meatball prices will be less than marginal cost.(B) Meatball prices will equal marginal cost.(C) Meatball prices will exceed marginal cost.(D) Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs

Answer 1

Answer:

Meatball prices will exceed marginal cost.

Explanation:

Taking on account that Angelo is the only meatball's provider in the area, he is the only actor in his market segment. If he wants to maximize the profit for his business the meatball prices will exceed marginal cost; there are two ways to make it possible for the product. the first option is to reduce the marginal cost through the reduction on the cost prices, it will reduce the total marginal cost and give a higher profit.

The second option involves rising the prices, in this case, as Angelo has the market's control he can rise the prices,as a result, the marginal cost will be the same but the meatball's prices will be higher increasing the profit.