A monopolist's profit-maximising price and output correspond to the point on a graph
A)where average total cost is minimised.
B)where total costs are the smallest relative to price.
C)where marginal revenue equals marginal cost.
D)where price is as high as possible.

Question

Quizplus · Accepted Answer

In order to maximise profits, a monopolist should produce at the level where marginal revenue equals marginal cost. This is because the monopolist's marginal revenue curve is downward sloping (due to the law of diminishing marginal returns), so they should keep producing as long as the marginal revenue from an additional unit exceeds its marginal cost. However, beyond this point, the marginal cost of producing an additional unit exceeds the marginal revenue, which would decrease overall profits. Therefore, the monopolist's profit-maximising price and output correspond to the point on the graph where marginal revenue equals marginal cost.

A Monopolist's Profit-Maximising Price and Output Correspond to the Point