Question

In using the graph for a monopolist, with demand, marginal revenue, marginal cost, and average total cost curves, explain how you find the profit maximizing level of output. (Note that this question asks about OUTPUT. The next question asks about PRICE.)

Profits are maximized at the quatnity where total revenue is highest above total cost

Profits are maximized at the quantity where ATC hits its minimum

Profits are maximized at the quantity where marginal revenue equals marginal cost

Profits are maximized at the quantity where demand hits marginal cost.

Answer 1

For any particular market whether it is perfectly competitive or an imperfect one, the general condition is that the marginal revenue should be equal to the marginal cost. When this happens the quantity so produced maximize the profit for the firm. This is because any output level below this has a greater marginal revenue than marginal cost, so that the output should be increased to maximize profit. Output level beyond this will result in losses are reduced profit indicating that the output should be reduced.

Select the third option.