Use the following diagram to answer the following questions.

-Refer to Diagram 5-1. What level of output should the monopolist produce?

Question

Use the following diagram to answer the following questions.
 
-Refer to Diagram 5-1. What level of output should the monopolist produce?

Quizplus · Accepted Answer

The monopolist should produce where marginal revenue equals marginal cost, which is at output level Q₂. At any level below Q₂, the marginal revenue is greater than the marginal cost, which means the monopolist can increase profit by producing a higher level of output. Above Q₂, the marginal cost is greater than the marginal revenue, which means the monopolist can increase profit by reducing the level of output. Therefore, Q₂ is the profit-maximizing output level for the monopolist.

Use the Following Diagram to Answer the Following Questions