The price charged by a profit-maximizing monopolist occurs at:
A) The minimum of the average total cost curve.
B) The price where marginal cost equals marginal revenue.
C) A price on the demand curve above the intersection where marginal revenue equals marginal cost.
D) A price on the average cost curve below the point where marginal revenue equals marginal cost.

Question

Quizplus · Accepted Answer

A profit-maximizing monopolist will produce where marginal revenue (MR) equals marginal cost (MC), but it will charge a price on the demand curve above this point in order to maximize profits. This is because the monopolist faces a downward-sloping demand curve and can charge a higher price for each unit sold. The price charged will be less elastic (higher) as we move down the demand curve. Thus, the monopolist will set a price on the demand curve above the intersection of MR and MC, which is choice C.

The Price Charged by a Profit-Maximizing Monopolist Occurs At