Narrbegin Exhibit 8.4 Demand and cost curves for a monopolist
-As shown in Exhibit 8.4, in order to maximise its profit (or minimise its loss), how much output should the monopoly produce?
A) 2 units per hour.
B) 4 units per hour.
C) 6 units per hour.
D) 8 units per hour.

Question

Narrbegin Exhibit 8.4 Demand and cost curves for a monopolist  
-As shown in Exhibit 8.4, in order to maximise its profit (or minimise its loss), how much output should the monopoly produce?
A) 2 units per hour. 
B) 4 units per hour. 
C) 6 units per hour. 
D) 8 units per hour.

Quizplus · Accepted Answer

The monopoly should produce the quantity where marginal revenue equals marginal cost, which in this case is 4 units per hour. At this level of output, the marginal revenue is $16 and the marginal cost is $16, resulting in a profit-maximizing equilibrium. At any higher or lower level of output, the marginal cost or marginal revenue would not be equal, resulting in either a lower profit or a loss.