The monopoly maximizes profit by setting
A) price equal to marginal cost.
B) price equal to marginal revenue.
C) marginal revenue equal to marginal cost.
D) marginal revenue equal to zero.

Question

Quizplus · Accepted Answer

A monopolist will maximize profit by producing a quantity at which marginal revenue equals marginal cost. This is because marginal revenue is the additional revenue earned from producing another unit of output, and marginal cost is the additional cost incurred from producing another unit of output. At the quantity where the two are equal, the monopolist can increase profits no further by producing more or less. Choosing answer choice C achieves this profit-maximizing outcome.

The Monopoly Maximizes Profit by Setting