A monopolist finds the output (Q*) rate that maximizes profit. It finds the price by
A) taking the height of the marginal revenue curve at output rate Q*.
B) taking the height of the marginal cost curve at output rate Q*.
C) taking the height of the demand curve at output rate Q*.
D) setting price equal to marginal cost.

Question

Quizplus · Accepted Answer

A monopolist determines the profit-maximizing output level where marginal cost equals marginal revenue (MC=MR) and then uses the demand curve to find the price consumers are willing to pay for that quantity. This is because the demand curve reflects the maximum price consumers are willing to pay for each quantity.

A Monopolist Finds the Output (Q*) Rate That Maximizes Profit