A monopolist maximizes its profits by selling up to the point at which:
A) its price equals its marginal cost.
B) its price equals its marginal revenue.
C) its marginal revenue equals its marginal costs.
D) the difference between its price and average cost is maximized.

Question

Quizplus · Accepted Answer

The monopolist maximizes profits where marginal revenue equals marginal cost. This is because at that point, the last unit sold brings in as much revenue as the cost to produce it, maximizing profit without overproducing and driving down the price. Option A is not necessarily the profit-maximizing point as the monopolist could still make a profit by setting a higher price than marginal cost. Option B does not take costs into consideration and may result in a loss if the price set is lower than the marginal cost. Option D is not the correct choice as profit maximization is not about maximizing the difference between price and average cost, but rather about maximizing the total profit.

A Monopolist Maximizes Its Profits by Selling Up to the Point