📚 Learning Guide
Profit Maximization in Monopolies
easy

In a monopoly market, a firm maximizes its profit by producing output where marginal revenue equals what?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Marginal cost

B

Total revenue

C

Average cost

D

Fixed cost

Understanding the Answer

Let's break down why this is correct

Answer

In a monopoly market, a firm maximizes its profit by producing output where marginal revenue equals marginal cost. Marginal revenue is the extra money the firm makes from selling one more unit of its product, while marginal cost is the extra cost of producing that unit. When these two values are equal, the firm is at the best point to maximize profit because producing more would cost more than it earns. For example, if a monopolist sells toys and finds that producing one more toy costs $5 but brings in $5 in revenue, it means they are at the optimal point for profit. If they produced more, they would start losing money, so they stop at that level of output.

Detailed Explanation

A monopoly maximizes profit when it produces the amount of goods where the extra money made from selling one more unit (marginal revenue) equals the extra cost of making that unit (marginal cost). Other options are incorrect because Some might think total revenue, which is all the money made from sales, is the key; People may confuse average cost with profit maximization.

Key Concepts

Marginal Revenue
Topic

Profit Maximization in Monopolies

Difficulty

easy level question

Cognitive Level

understand

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