To maximize profits, a monopoly produces at ____ and a competitive firm produces at ____.
A)price equal to marginal cost; price equal to marginal cost
B)price equal to average cost; price equal to marginal cost
C)marginal revenue greater than marginal cost; price greater than marginal cost
D)marginal revenue equal to marginal cost; price equal to marginal cost
E)marginal revenue equal to average revenue; price greater than marginal revenue

Question

Quizplus · Accepted Answer

A monopoly maximizes profits by producing the quantity where marginal revenue equals marginal cost, and then sets the price at the point on the demand curve that corresponds to that quantity. A competitive firm also produces where marginal cost equals marginal revenue, but it sells at the market price, which is equal to marginal cost in a competitive market. Therefore, the monopoly produces less output and charges a higher price than a competitive firm would.

To Maximize Profits, a Monopoly Produces at ____ and a Competitive