Exhibit 10-1
-A monopoly will expand output until
A)total revenue is maximized.
B)marginal revenue equals marginal cost.
C)price elasticity is equal to 1.
D)average revenue is maximized.
E)marginal revenue equals zero.

Question

Exhibit 10-1 
-A monopoly will expand output until
A)total revenue is maximized. 
B)marginal revenue equals marginal cost. 
C)price elasticity is equal to 1. 
D)average revenue is maximized. 
E)marginal revenue equals zero.

Quizplus · Accepted Answer

A monopoly will expand output until marginal revenue (MR) equals marginal cost (MC) because at that point, any additional units of output would cost more to produce than the revenue generated by selling them. This means that producing up to that point would result in the most profit for the monopolist. Maximizing total revenue, average revenue, or price elasticity would not necessarily result in maximum profit for the monopolist. Marginal revenue equals zero would be the output level where the monopolist would stop producing altogether, as any additional units produced would result in a negative profit.

Exhibit 10-1 -A Monopoly Will Expand Output Until