The figures given below represent the revenue curves of a monopolist.Figure 11.2
TR: Total revenue curve
AR: Average revenue curve
MR: Marginal revenue curve
-A monopolist maximizes profit:
A)by charging the highest possible price on the demand curve.
B)by charging a price that equals its marginal cost.
C)by producing a level of output where the average-cost curve intersects the demand curve.
D)by producing a level of output where marginal revenue equals marginal cost.
E)by charging a price equal to its average total cost.

Question

The figures given below represent the revenue curves of a monopolist.Figure 11.2
  TR: Total revenue curve
AR: Average revenue curve
MR: Marginal revenue curve
-A monopolist maximizes profit:
A)by charging the highest possible price on the demand curve. 
B)by charging a price that equals its marginal cost. 
C)by producing a level of output where the average-cost curve intersects the demand curve. 
D)by producing a level of output where marginal revenue equals marginal cost. 
E)by charging a price equal to its average total cost.

Quizplus · Accepted Answer

A monopolist maximizes profit where marginal revenue equals marginal cost. This is the point where the slope of the marginal revenue curve intersects with the marginal cost curve. At this level of output, the monopolist can charge a price higher than the marginal cost which creates a profit. If the monopolist produces more than this level, the marginal cost will exceed the marginal revenue and the firm will be making a loss. If the monopolist produces less than this level, the cost of production will be lower than the revenue received but profits can still be increased by producing more. Thus, the correct choice is D.

The Figures Given Below Represent the Revenue Curves of a Monopolist.Figure