A monopolist maximizes profit by producing _____.
A)on the inelastic portion of the demand curve
B)at the level where average cost is minimized
C)at the point where the cost of producing the last unit of output is equal to the price of that unit
D)at the output level where marginal revenue equals marginal cost
E)at the level where the deadweight loss in the market is zero.

Question

Quizplus · Accepted Answer

A monopolist maximizes profit when producing at the output level where marginal revenue (MR) equals marginal cost (MC). This is because at that level of output, the marginal revenue generated from selling an additional unit of output equals the marginal cost of producing that additional unit, so the monopolist is maximizing profits by producing more up to that level. Producing more than that level would lead to a lower marginal revenue than marginal cost, decreasing profits. Producing less than that level would mean leaving potential profits on the table, as there is still room for marginal revenue to outweigh marginal cost.

A Monopolist Maximizes Profit by Producing _____