The profit-maximizing monopolist,faced with a negative-sloping demand curve,will always produce:
A) at an output greater than the output where average costs are minimized
B) at an output short of that output where average costs are minimized
C) at an output equal to industry output under pure competition
D) a and c
E) none of the above

Question

Quizplus · Accepted Answer

The profit-maximizing monopolist will set their output where marginal revenue equals marginal cost. Since the demand curve is negative-sloping, the monopolist can charge a higher price for a lower quantity sold. Thus, the marginal revenue curve lies below the demand curve. This means that the monopolist will produce at an output level where the marginal cost curve intersects the marginal revenue curve, which will be at a lower output than the one where average costs are minimized. Therefore, the monopolist will produce at an output short of that output where average costs are minimized. Answer choices A, C, and D are all incorrect because the monopolist will not produce at an output level greater than the output where average costs are minimized or an output equal to industry output under pure competition.

The Profit-Maximizing Monopolist,faced with a Negative-Sloping Demand Curve,will Always Produce