How do profit-maximizing monopolists choose a level of output?
A) such that marginal revenue equals marginal cost and price exceeds average variable cost
B) such that price equals marginal cost but exceeds average variable cost
C) such that price equals marginal revenue but exceeds average variable cost
D) such that average total cost is minimized

Question

Quizplus · Accepted Answer

The profit-maximizing monopolist will choose the level of output where marginal revenue equals marginal cost, because at that point, they can produce one more unit of output without decreasing their total profit. However, they will also need to ensure that the price they charge exceeds their average variable cost, otherwise they will be making losses. So, option A is the correct choice.

How Do Profit-Maximizing Monopolists Choose a Level of Output