A profit-maximizing monopolist produces the rate of output where
A)MR = MC and determines price based on the demand curve.
B)Price = MC.
C)MR = MC and can set price at any amount it chooses.

Question

Quizplus · Accepted Answer

A monopolist maximizes profit by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC), and then sets the price based on the demand curve. This is because in order to sell an additional unit, the monopolist must lower the price of all units sold, thus MR is less than the price. Therefore, setting the price higher than the demand curve would result in a lower quantity of output and lower profit, while setting it lower would result in higher output but also lower revenue and profit. The monopolist is able to choose the price based on the demand curve, but the profit-maximizing choice is where MC=MR.

A Profit-Maximizing Monopolist Produces the Rate of Output Where