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 a 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 a single- price monopolist would be

Quizplus · Accepted Answer

When marginal costs are zero, the profit- maximizing output for a single- price monopolist is at the point where marginal revenue equals zero which is where the demand curve is elastic (flat). In this case, it is at output Q2 where the monopolist can charge the highest price and earn the highest profit. At any other output level, the marginal revenue will be negative and the monopolist will not be maximizing profits. Therefore, the best choice is C) Q2.

Consider the Following AR and MR Curves for a Single-