Examkin

Question

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

To achieve maximum total profit in the short run, a monopolist will expand output up to the point where which of the following conditions is satisfied?

  1. Marginal revenue is equal to marginal costAnswer
  2. B
    Price is equal to marginal cost
  3. C
    Marginal revenue is equal to zero
  4. D
    Price is equal to average total cost

Answer

Marginal revenue is equal to marginal cost
A monopolist achieves maximum total profit at the output level where marginal revenue equals marginal cost (MR=MCMR = MC). At this output, producing additional units would cost more than the revenue they generate, while producing fewer units would leave potential profits unearned.

Step-by-Step Solution

1
Identify the general profit-maximization rule for any market structure.
Profit is maximized when marginal revenue (MRMR) equals marginal cost (MCMC).
If MR>MCMR > MC, producing an extra unit adds more to revenue than to cost, increasing total profit. If MR<MCMR < MC, producing an extra unit adds more to cost than to revenue, reducing total profit.
2
Apply this rule to a monopoly firm.
The monopolist produces at the output level where MR=MCMR = MC.
This condition specifies the exact output level that yields maximum short-run profit for the monopolist.

Key Concept

Monopoly Short-Run Profit Maximization Condition
Rate this question

Topics

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

More questions from this topic