The profit-maximising level of output for a monopoly firm is where:
A)marginal revenue equals average total cost
B)marginal revenue equals marginal cost
C)marginal cost equals average revenue
D)average total cost equals demand

Question

Quizplus · Accepted Answer

The profit-maximizing level of output for a monopoly firm is where marginal revenue (MR) equals marginal cost (MC). This is because a monopoly firm faces a downward-sloping demand curve and so, in order to sell an additional unit, it must reduce the price for all units sold, resulting in a decrease in revenue. Therefore, to maximize profit, a monopoly firm will produce the quantity where the additional revenue earned (MR) from selling one more unit is equal to the additional cost of producing one more unit (MC).

The Profit-Maximising Level of Output for a Monopoly Firm Is