A profit maximizing monopolist generally chooses its output where:
Correct answer: B. Marginal revenue equals marginal cost
- A. Average cost equals average revenue
- B. Marginal revenue equals marginal cost
- C. Price equals marginal cost in every case
- D. Total revenue equals total cost
Explanation
A monopolist maximizes profit by producing where marginal revenue equals marginal cost, provided the output is worthwhile to produce. It then charges the price shown by the demand curve at that output, so price usually exceeds marginal cost.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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