Managers of a monopoly maximize profit in the long run by setting ______equal to______ .

Question

Quizplus · Accepted Answer

In order to maximize profit in the long run, a monopoly should set marginal revenue equal to long-run marginal cost. This is because, in the long run, firms can adjust their inputs and therefore, their production levels. In this scenario, a firm will produce where its marginal revenue is equal to its long-run marginal cost. This ensures that they are producing the optimal amount to maximize their profits. Setting marginal cost equal to long-run average variable cost, as in choice A or D, would ensure that the firm is covering its variable costs, but it would not necessarily be maximizing profits. Setting marginal cost equal to long-run average cost, as in choice B, would result in a monopoly producing where marginal cost equals marginal revenue. However, this would not necessarily result in maximum profits as it does not take into account the firm's fixed costs.

Managers of a Monopoly Maximize Profit in the Long Run