Suppose that the Yankee Cap Company is a profit-maximizing firm with a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Cap Company is producing a level of output at which:
A) marginal revenue equals $25.
B) marginal cost equals marginal revenue.
C) average total cost equals $25.
D) average total cost is greater than $25.

Question

Quizplus · Accepted Answer

In a monopoly, a profit-maximizing firm produces where marginal cost equals marginal revenue, not necessarily where price equals marginal revenue.

Suppose That the Yankee Cap Company Is a Profit-Maximizing Firm