Figure: Monopolist If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Question

Figure: Monopolist  If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Quizplus · Accepted Answer

The profit-maximizing price for a monopolist is where marginal revenue (MR) equals marginal cost (MC). In this figure, the MR curve is shown as a downward-sloping curve below the demand curve, and the MC curve is upward-sloping. The point where the MR and MC curves intersect is at a price of $60, which is the profit-maximizing price for the monopolist. At this price, the monopolist produces a quantity of 12 units and earns a profit of $240.

Figure: Monopolist If This Figure Represents the Demand and Cost