As long as the demand curve lies above the marginal revenue curve for a monopolist, it will charge a price for its product that is
A)above total cost.
B)below marginal cost.
C)above marginal cost.
D)above average total cost.

Question

Quizplus · Accepted Answer

A monopolist will always try to maximize its profits by producing the quantity at which marginal cost equals marginal revenue. However, since it is the only seller in the market, it has market power and can charge a price higher than its marginal cost. The demand curve shows the willingness of consumers to pay at different prices, and the marginal revenue curve shows the additional revenue from selling one more unit. As long as the demand curve lies above the marginal revenue curve, the monopolist can charge a price that is above its marginal cost but below the highest price consumers are willing to pay. Therefore, the best choice is C, above marginal cost. The other choices (above total cost and above average total cost) are not necessarily true, as a monopolist might charge a price that covers both its variable and fixed costs, or a price that covers all costs plus a markup. B (below marginal cost) is not true because the monopolist would not be maximizing its profits if it sells at a price that is below its marginal cost.

As Long as the Demand Curve Lies Above the Marginal