To maximize its profit,a single-price monopoly produces the quantity at which
A) the difference between marginal revenue and marginal cost is as large as possible.
B) marginal revenue equals marginal cost.
C) average total cost is at its minimum.
D) the marginal cost curve intersects the demand curve.
E) the marginal revenue curve intersects the horizontal axis.

Question

Quizplus · Accepted Answer

A single-price monopoly will maximize its profit when it produces the quantity at which its marginal revenue (MR) equals its marginal cost (MC). This is because MR tells the monopolist how much additional revenue it will earn by producing one more unit of output, while MC tells the monopolist how much additional cost it will incur by doing so. If MR is greater than MC, the monopolist can increase its profit by producing more output. If MR is less than MC, the monopolist should reduce its output to increase its profit. Only when MR equals MC is the monopolist producing the optimal quantity that maximizes its profit.

To Maximize Its Profit,a Single-Price Monopoly Produces the Quantity at Which