A profit-maximizing monopolist that produces in the short run will _____
A)choose the output level where marginal revenue exceeds marginal cost by the largest amount.
B)increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.
C)choose the output level where average total cost is at its minimum.
D)increase price as long as average revenue exceeds average total cost.
E)choose the output level where average revenue exceeds average total cost by the largest amount.

Question

Quizplus · Accepted Answer

A profit-maximizing monopolist produces where marginal revenue (MR) equals marginal cost (MC). However, in the short run, the firm may find that MR exceeds MC at the current output level. In this case, the firm will increase output as long as MR exceeds MC because each additional unit produced will add more to revenue than to costs. However, if MC exceeds MR, the firm would reduce output to increase profits. Therefore, the profit-maximizing monopolist that produces in the short run will increase output as long as the marginal revenue exceeds the marginal cost of producing that unit (option B).

A Profit-Maximizing Monopolist That Produces in the Short Run Will