Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal revenue
B
Average total cost
C
Price
D
Total revenue
Understanding the Answer
Let's break down why this is correct
Answer
A monopolist maximizes profit by producing the quantity of output where marginal cost equals marginal revenue. Marginal cost is the additional cost of producing one more unit of a good, while marginal revenue is the additional income from selling that extra unit. When these two amounts are equal, it means the monopolist is making the most profit on each unit sold. For example, if a company makes toys and finds that producing the 100th toy costs $5, and selling that 100th toy also brings in $5, then they are at the profit-maximizing level of output. If the marginal cost were higher than marginal revenue, the company would lose money on that unit, so they would need to adjust production to maximize profits.
Detailed Explanation
A monopolist makes the most money when the cost to make one more item (marginal cost) is the same as the extra money made from selling that item (marginal revenue). Other options are incorrect because Some might think that average total cost is the key point; 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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