When a monopolist is maximizing profits:

Question

Quizplus · Accepted Answer

When a monopolist maximizes profits, they produce where marginal revenue equals marginal cost (MR=MC). This output level is less than the efficient level of output because it is lower than the output level where marginal social benefit equals marginal social cost (MSB=MSC). Therefore, choice C is the correct answer. Choices A and B are incorrect because marginal social benefit in a monopolistic market is not necessarily equal to marginal social cost, and it is possible that marginal social cost is lower than marginal social benefit. Choice D is incorrect because potential gains from trade exist in all market structures, including monopolistic markets, but the monopolist chooses not to produce at the efficient level of output to maximize profits.

When a Monopolist Is Maximizing Profits