Refer to Figure 24.3.Suppose this good could somehow be produced at no cost (that is, the total cost at any level of output was zero).This single-price monopoly firm would maximize profit by A) Raising the price as high as possible until the quantity demanded began to decrease. B) Producing an infinite amount and selling at the highest price possible. C) Producing Q₂ and charging P₂.

Question

Quizplus · Accepted Answer

Since the total cost is zero, the profit maximization point is where MR = MC. At that output level, the firm will charge the maximum price that the market will bear, which is P₂. This is the profit maximizing price and quantity combination for the firm.