To maximize , a monopolist will produce the level of output where:
A) marginal revenue is equal to average cost.
B) average revenue is equal to marginal cost.
C) marginal revenue is equal to marginal cost.
D) average revenue is equal to average cost.

Question

Quizplus · Accepted Answer

A monopolist maximizes profit where marginal revenue (the change in revenue from producing one more unit) is equal to marginal cost (the change in cost from producing one more unit). This is because producing an additional unit will increase revenue by the marginal revenue, but also increase costs by the marginal cost, so the monopolist wants to produce right up until the point where the two are equal to maximize profit. Average revenue and average cost do not enter into this decision-making process.

To Maximize , a Monopolist Will Produce the Level of Output