Exhibit 9-4 Demand and cost curves for a monopolist

As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), what price should the monopoly charge for its product?

Question

Exhibit 9-4 Demand and cost curves for a monopolist
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As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), what price should the monopoly charge for its product?

Quizplus · Accepted Answer

The monopoly should charge a price where marginal revenue (MR) equals marginal cost (MC). In Exhibit 9-4, the MC curve intersects with the demand curve at a quantity of 4 units. At this quantity, the corresponding price on the demand curve is $120 per unit. Therefore, the monopoly should charge $120 per unit in order to maximize its profit.

Exhibit 9-4 Demand and Cost Curves for a Monopolist