Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The socially optimal level of output is ______ units per day.

Question

Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.  The socially optimal level of output is ______ units per day.

Quizplus · Accepted Answer

The socially optimal level of output is where marginal cost (MC) is equal to marginal revenue (MR). From the graph, we can see that MC intersects with MR at point H, which corresponds to an output level of 6 units per day. This is the socially optimal level of output for the monopolist. At this level of output, the price (P) is equal to the marginal cost (MC), which maximizes total surplus (the sum of consumer surplus and producer surplus) and allocates resources efficiently.

Suppose the Figure Below Shows the Demand Curve, Marginal Revenue