A monopoly maximizes profit by
A)producing at the level of output associated with unitary price elasticity of demand.
B)producing at the level of output associated with maximum total revenue.
C)producing at the level at which MR = MC.
D)producing as much as people will buy at level at which P = AC.
E)charging the highest price that anyone will pay for the good.

Question

Quizplus · Accepted Answer

A monopoly maximizes profit by producing at the level at which marginal revenue (MR) equals marginal cost (MC). This is the point at which the additional revenue from producing one more unit is just equal to the additional cost of producing that unit. At this level of output, the monopoly can charge a price that is higher than its marginal cost, resulting in a positive profit. Producing at the level of output associated with unitary price elasticity of demand or maximum total revenue may not necessarily maximize profit. Producing as much as people will buy at the level at which P = AC may result in zero profit. Finally, charging the highest price that anyone will pay for the good may not be the most profitable strategy, as it may result in a lower level of sales and lower overall profit.

A Monopoly Maximizes Profit by