Suppose we know that a monopolist is maximizing its profits. Which of the following is a correct inference? the monopolist has?
Correct answer: C. equated marginal revenue and marginal cost
- A. maximized its total revenue
- B. set price equal to its average cost
- C. equated marginal revenue and marginal cost
- D. maximized the difference between marginal revenue and marginal cost.
Explanation
Profit is maximized at the output where the additional revenue from one more unit equals the additional cost of producing it, so MR = MC. This does not generally mean that total revenue is maximized or that price equals average 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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