Suppose a monopoly has strictly positive marginal costs. Compared to the profit maximizing output, the output that maximizes sales revenue is:

Question

Quizplus · Accepted Answer

In a monopoly, the profit maximizing output occurs where marginal revenue equals marginal cost. However, to maximize sales revenue, the monopoly would produce where marginal revenue is zero (i.e. at the point where the demand curve is elastic). This output level is always lower than the profit maximizing output level, where marginal revenue is negative (i.e. the demand curve is inelastic). Therefore, the output that maximizes sales revenue is lower than the profit maximizing output.

Suppose a Monopoly Has Strictly Positive Marginal Costs