Examkin

Question

Difficulty: EasyMonopoly: Short-Run and Long-Run Price and Output Determination

Which of the following conditions determines the profit-maximizing output for a monopolist in the short run?

  1. A
    Price equals marginal cost
  2. B
    Total revenue equals total cost
  3. Marginal revenue equals marginal costAnswer
  4. D
    Marginal revenue equals zero

Answer

The profit-maximizing output for a monopolist in the short run is determined where marginal revenue equals marginal cost (MR=MCMR = MC).
The correct answer states that marginal revenue equals marginal cost. A monopolist achieves maximum short-run economic profit at the output level where the additional revenue gained from selling one more unit (MRMR) equals the additional cost incurred to produce it (MCMC).

Step-by-Step Solution

1
Identify the profit-maximization objective
The firm seeks to maximize total profit (π=TR−TC\pi = TR - TC).
Economic theory assumes all firms aim to maximize economic profit.
2
Apply the marginal decision rule
Output should be expanded as long as MR>MCMR > MC and reduced if MR<MCMR < MC, settling at MR=MCMR = MC.
When marginal revenue equals marginal cost, any further change in output will decrease total profit.

Key Concept

Monopoly Profit Maximization Rule (MR=MCMR = MC)
Rate this question

Topics

Monopoly: Short-Run and Long-Run Price and Output Determination

More questions from this topic