Refer to Figure 24.3. Suppose this good could somehow be produced at no cost (that is, the total cost at any level of output was zero). This single-price monopoly firm would maximize profit by A) Raising the price as high as possible until the quantity demanded began to decrease. B) Producing an infinite amount and selling at the highest price possible. C) Producing Q₂ and charging P₂. D) Producing Q₃ and charging P₃.

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Quizplus · Accepted Answer

If the total cost is zero, the monopolist can produce any level of output without incurring any additional cost. However, the monopolist would still want to maximize its profit by charging the highest possible price. In this case, the profit-maximizing level of output occurs where marginal revenue (MR) equals zero, or where the demand curve intersects with the marginal cost curve. This occurs at point P1 and corresponds to output level QS1. Therefore, the monopolist would produce QS1 and charge price PS1.