Figure: Monopolist If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Question

Figure: Monopolist  If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

Quizplus · Accepted Answer

The monopolist should choose the output level where marginal revenue (MR) equals marginal cost (MC) to maximize profits. In this graph, the intersection of the MR and MC curves occurs at an output level of Q=800. At this output level, the price that the monopolist should charge is found by going up from the intersection point to the demand curve, which gives a price of $60. Therefore, the monopolist should charge a price of $60 to maximize profits.

Figure: Monopolist If This Figure Represents the Demand and Cost