To maximize profit, the monopolist increases output:
A) until it is using full manufacturing capacity.
B) until marginal cost is equal to marginal revenue.
C) to the same amount it would produce if the firm was competitive, but maximizes price.
D) as long as the marginal revenue curve is higher than the demand curve.

Question

Quizplus · Accepted Answer

The monopolist can maximize profit by producing the level of output where marginal cost is equal to marginal revenue. At this output level, the monopolist is able to charge a price that is greater than both marginal cost and average cost, resulting in a positive economic profit. Option A is incorrect because producing at full capacity does not necessarily maximize profit, since the monopolist may incur higher costs due to diminishing returns or lower demand. Option C is incorrect because a monopolist would never produce the same amount as a perfectly competitive firm, as this would lead to zero economic profit. Option D is incorrect because the monopolist's output would continue to increase as long as marginal revenue is greater than marginal cost, even if the marginal revenue curve is below the demand curve.

To Maximize Profit, the Monopolist Increases Output