📚 Learning Guide
Profit Maximization in Monopolies
easy

A monopolist maximizes profit by producing the quantity of output where marginal cost equals which of the following?

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Learning Path
Learning Path

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2
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Choose the Best Answer

A

Marginal revenue

B

Average total cost

C

Price

D

Total revenue

Understanding the Answer

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Answer

A monopolist maximizes profit by producing the quantity of output where marginal cost equals marginal revenue. Marginal cost is the cost of producing one more unit of a good, while marginal revenue is the extra income gained from selling that additional unit. When these two values are equal, the monopolist knows they are making the most profit because producing more would cost more than the revenue gained. For example, if a company makes bicycles and finds that producing the 100th bike costs $200, and selling it brings in $200, they are at the optimal point. Producing one more bike would increase costs without increasing profit, so the monopolist will stop at that point.

Detailed Explanation

A monopolist makes the most money when the cost to make one more item (marginal cost) is the same as the money made from selling that item (marginal revenue). Other options are incorrect because Some might think that average total cost, which is the total cost divided by the number of items made, is the key; It's easy to confuse price with profit.

Key Concepts

Profit Maximization
Topic

Profit Maximization in Monopolies

Difficulty

easy level question

Cognitive Level

understand

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