A monopoly firm is charging the price the market will bear at a level of output where MC equals $6 and is increasing, MR equals $9, and average variable cost equals $5. To maximize profits, what action should the firm take?

Question

Quizplus · Accepted Answer

To maximize profits, a monopoly should produce where marginal cost (MC) equals marginal revenue (MR). Since MR ($9) is greater than MC ($6), the firm should increase output to reach the point where MC equals MR. Increasing output typically requires lowering the price in order to sell the additional output.

A Monopoly Firm Is Charging the Price the Market Will