To maximize profit, the dominant firm produces the quantity that sets its marginal cost equal to its residual marginal revenue.

Question

Quizplus · Accepted Answer

This is the standard profit-maximizing rule for a dominant firm in a market. By setting marginal cost equal to residual marginal revenue (which takes into account the effect of the dominant firm's output on the market price), the dominant firm can produce the quantity that generates the highest profit.

To Maximize Profit, the Dominant Firm Produces the Quantity That