Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
-Refer to Figure 10-2.If marginal costs were zero,the profit-maximizing output for this single-price monopolist would be

Question

Consider the following AR and MR curves for a single-price monopolist.
  FIGURE 10-2
-Refer to Figure 10-2.If marginal costs were zero,the profit-maximizing output for this single-price monopolist would be

Quizplus · Accepted Answer

With zero marginal costs, the profit-maximizing output for the monopolist is where MR = 0, which is at Q2. At Q2, the monopolist charges a price of P2 and earns a profit equal to the shaded rectangle. Both Q1 and Q3 generate losses for the monopolist. At Q1, the monopolist incurs a loss equal to the shaded triangle, while at Q3, the monopolist incurs a loss equal to the shaded rectangle. At Q4, the monopolist would not produce any output, so there would be no profit or loss.

Consider the Following AR and MR Curves for a Single-Price