At the profit-maximizing level of output for a monopolist,
A) price is greater than marginal cost.
B) price is greater than average revenue.
C) average total cost equals marginal cost.
D) total revenue is greater than total cost.

Question

Quizplus · Accepted Answer

A monopolist will produce at the level where marginal revenue equals marginal cost, which is output quantity Qm. At this level of output, the monopolist charges a price (Pm) that is greater than marginal cost (MC), as shown by the profit-maximizing markup rule (Pm-MC)/Pm = 1/|E_d|, where E_d is the absolute value of the price elasticity of demand. Thus, the correct answer is A, price is greater than marginal cost.

At the Profit-Maximizing Level of Output for a Monopolist