The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17

-Refer to Figure 11-17.If the monopoly firm wants to maximize its profit,it should operate at a level of output equal to

Question

The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
 
-Refer to Figure 11-17.If the monopoly firm wants to maximize its profit,it should operate at a level of output equal to

Quizplus · Accepted Answer

In order to maximize profits, the firm should produce where marginal cost (MC) equals marginal revenue (MR). In the figure, MC intersects MR at output level Q₂, which is the profit-maximizing output. At this output, the firm can charge a price of P₂, resulting in total revenue of P₂ × Q₂. The cost of producing Q₂ units is shown by the total cost curve as TC₂. Therefore, the firm's profit at output level Q₂ is equal to total revenue (P₂ × Q₂) minus total cost (TC₂). At any other output level, the firm's profit would be lower.

The Figure Below Illustrates the Cost and Revenue Structure for a Monopoly