The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3

-Refer to Figure 9-3. Which of the following price and output combinations would the monopoly prefer?
A) P2 and Q2
B) P3 and Q1
C) P1 and Q1
D) P4 and Q3

Question

The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3
 
-Refer to Figure 9-3. Which of the following price and output combinations would the monopoly prefer?
A) P2 and Q2 
B) P3 and Q1 
C) P1 and Q1 
D) P4 and Q3

Quizplus · Accepted Answer

A monopoly aims to maximize profits by producing at a quantity where marginal revenue equals marginal cost and then charging the highest price the market will bear for that quantity. Without seeing Figure 9-3, the general principle is that monopolies prefer a combination of price and quantity that maximizes the difference between total revenue and total cost.

The Following Diagram Contains Information on Cost and Revenue Curves