A monopolist’s profit-maximising price and output correspond to the point on a graphGroup of answer choiceswhere marginal revenue equals marginal cost.where price is as high as possible.where total costs are the smallest relative to price.where average total cost is minimised.
Question
A monopolist’s profit-maximising price and output correspond to the point on a graphGroup of answer choiceswhere marginal revenue equals marginal cost.where price is as high as possible.where total costs are the smallest relative to price.where average total cost is minimised.
Solution
The profit-maximizing price and output for a monopolist correspond to the point on a graph where marginal revenue equals marginal cost. This is because a monopolist, like any firm, maximizes profit by producing up to the point where the cost of producing an additional unit (marginal cost) is equal to the revenue gained from selling that additional unit (marginal revenue). If marginal cost is less than marginal revenue, the monopolist can increase profit by producing more. If marginal cost is greater than marginal revenue, the monopolist can increase profit by producing less. Therefore, the profit-maximizing point is where these two values intersect.
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