For a monopolist,at the profit-maximizing level of output:
A)price is greater than average revenue.
B)average revenue is greater than marginal cost.
C)marginal cost is greater than price.
D)None of these statements is true.

Question

Quizplus · Accepted Answer

A monopolist will always produce at a level where marginal revenue (MR) is equal to marginal cost (MC) to maximize profits. At this level of output, the price charged will be higher than the marginal revenue (i.e., P > MR) but lower than the average revenue (i.e., P < AR). Therefore, option A is false. However, since the monopolist charges a higher price than the average revenue, there is a positive difference between price and average revenue (i.e., P > AR). Therefore, option B is true. Moreover, since the profit-maximizing level of output is where MR = MC, marginal cost should be less than or equal to price (i.e., MC ≤ P). Therefore, option C is false.

For a Monopolist,at the Profit-Maximizing Level of Output