The price-output combination that maximizes profits for a monopolist occurs at the point where
A) total revenues and total costs are equal.
B) the difference between total revenues and total costs is the greatest.
C) total revenues are the greatest.
D) the elasticity of demand equals one.

Question

Quizplus · Accepted Answer

The point where the difference between total revenues and total costs is the greatest represents the maximum profit for a monopolist, as it indicates that the monopolist is producing at the level where marginal revenue equals marginal cost, which is the profit-maximizing level of output. Option A is not necessarily true, as total revenues may be greater or smaller than total costs depending on the level of production. Option C is not necessarily true, as high total revenues may result in higher costs that offset the profits earned. Option D is not necessarily true, as the elasticity of demand may not be constant across all levels of output.

The Price-Output Combination That Maximizes Profits for a Monopolist Occurs