Question

A monopoly Multiple Choice

a) Maximizes profits at the output level where P = MC.
b) is one of many sellers in a given market.
c) Charges higher prices than competitive firms, ceteris paribus ences
d) Maximizes profits at the output level where P=MR

Answer 1

A monopolist maximizes profits at the output level where Marginal Revenue (MR) equals Marginal Cost (MC) and determines the price based on market demand. Perfect competition differs in that MR is equal to price, while for a monopolist, MR is not equal to price due to changes in output quantity.

Step-by-step explanation:

A monopolist maximizes profits at the output level where Marginal Revenue (MR) equals Marginal Cost (MC). Once the profit-maximizing level of output is determined, the monopolist sets the price for that quantity of output based on the market demand curve. If the price charged is above the average cost, the monopolist earns positive profits.

In contrast, a perfectly competitive firm also maximizes profits at the output level where MR equals MC. However, the key difference is that in perfect competition, MR is equal to price, while for a monopolist, MR is not equal to price due to changes in quantity of output affecting price.

Therefore, the correct option is d) Maximizes profits at the output level where P=MR.