Many people believe that monopolies charge any price they want to without affecting sales. In fact, the output and sales level for a profit- maximizing monopoly is codetermined with price where

Question

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Monopolies will maximize profits where marginal cost equals marginal revenue. This means that they will consider both the cost of producing an additional unit (marginal cost) and the additional revenue gained from selling that unit (marginal revenue) when setting their price. Choice A is incorrect because a profit-maximizing monopoly may not necessarily produce at the minimum average cost. Choice B is incorrect because average cost is not involved in the profit-maximizing decision. Choice C is incorrect because it does not involve marginal revenue.

Many People Believe That Monopolies Charge Any Price They Want