Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
-Refer to Figure 10-5. This single-price monopolist would maximize total revenue by producing the quantity

Question

Suppose a monopolist faces the demand curve and cost curves shown below.
  FIGURE 10-5
-Refer to Figure 10-5. This single-price monopolist would maximize total revenue by producing the quantity

Quizplus · Accepted Answer

The monopolist would maximize total revenue by producing the quantity where marginal revenue (MR) equals zero, which occurs at point Q3. At any quantity greater than Q3, the MR becomes negative and the monopolist would lose more revenue by producing an additional unit than it would gain. Therefore, the monopolist would produce Q3 units and charge the corresponding price on the demand curve.

Suppose a Monopolist Faces the Demand Curve and Cost Curves