The monopolist's preferred production level,for maximum profit,is determined by the intersection of which two curves?
A) demand and marginal cost
B) demand and marginal revenue
C) marginal revenue and marginal cost
D) marginal cost and average total cost
E) demand and average total cost

Question

Quizplus · Accepted Answer

The monopolist's preferred production level for maximum profit is determined by the intersection of marginal revenue and marginal cost curves. This is because the monopolist faces a downward sloping demand curve, and thus in order to sell more units, the monopolist has to lower the price which reduces the revenue gained from selling each additional unit. The marginal revenue curve is thus below the demand curve for a monopolist. To maximize profits, the monopolist needs to find the level of output where the additional revenue gained from selling one more unit (marginal revenue) is equal to the cost of producing that additional unit (marginal cost). This is the point where the two curves intersect, and the monopolist produces the quantity of output that corresponds to this point.

The Monopolist's Preferred Production Level,for Maximum Profit,is Determined by the Intersection