This graph shows the cost and revenue curves faced by a monopoly. According to the graph shown,if Q2 units are being produced,this monopolist:
A) is not maximizing profits.
B) is producing where marginal costs are less than marginal revenue.
C) is earning negative profits.
D) should increase production.

Question

This graph shows the cost and revenue curves faced by a monopoly.  According to the graph shown,if Q2 units are being produced,this monopolist:
A) is not maximizing profits. 
B) is producing where marginal costs are less than marginal revenue. 
C) is earning negative profits. 
D) should increase production.

Quizplus · Accepted Answer

If Q2 units are being produced, the marginal cost is equal to marginal revenue, not at its lowest point. Therefore, the monopolist is not maximizing profits. The correct production level for the monopolist is where marginal cost equals marginal revenue and where the marginal cost curve intersects the marginal revenue curve from above.

This Graph Shows the Cost and Revenue Curves Faced by a Monopoly