A monopolist maximizes profits by setting the quantity where
A) marginal revenue is equal to marginal cost.
B) marginal revenue is greater than marginal cost.
C) marginal revenue is less than marginal cost.
D) total revenue is as high as possible.

Question

Quizplus · Accepted Answer

A monopolist maximizes profits by producing the quantity of output where marginal revenue is equal to marginal cost. This is because at this level of output, the monopolist's incremental revenue from producing one more unit of output (marginal revenue) is equal to the incremental cost of producing that unit (marginal cost), so the profit-maximizing output level is achieved. If the monopolist were to produce more or less than this level, profits would be lower.

A Monopolist Maximizes Profits by Setting the Quantity Where