At a monopoly's profit-maximizing level of output:
A)marginal revenue equals marginal cost.
B)marginal revenue is greater than marginal cost.
C)marginal revenue is less than marginal cost.
D)price is less than marginal cost.

Question

Quizplus · Accepted Answer

A monopoly's profit-maximizing level of output occurs where marginal revenue equals marginal cost. This is because at this point, the additional revenue gained from selling one more unit equals the additional cost of producing that unit. This maximizes the monopoly's profits. If marginal revenue is greater than marginal cost, the monopoly could increase profits by producing more. If marginal revenue is less than marginal cost, the monopoly would decrease profits by producing more. And if price is less than marginal cost, the monopoly is not maximizing profits as it could increase profits by producing more.

At a Monopoly's Profit-Maximizing Level of Output