Final answer:
A monopolist maximizes revenue by producing at the quantity where marginal revenue equals marginal cost. This point is considered the profit-maximizing quantity and is determined using the marginal approach, without requiring complete total revenue or total cost curve information.
Step-by-step explanation:
To maximize revenue, a single price monopolist would ideally look to produce and sell the quantity of goods where marginal revenue (MR) is equal to marginal cost (MC). However, it's important to note that a monopolist’s primary goal is to maximize profits, not just revenue. According to Figure 9.7, the profit-maximizing level of output for a monopolist is determined in three steps:
The monopolist chooses the profit-maximizing level of output Q₁, where MR = MC.
The price P₁ to charge for this quantity is determined by extending a line up from Q₁ to the point where it intersects the demand curve. This is the price the monopolist will charge.
Understanding profits involve calculating total revenue, which is Q₁ multiplied by P₁, and total cost, which is Q₁ multiplied by the average cost to produce Q₁ (represented by point S). Profits are then deduced by subtracting total costs from total revenues, resulting in the profit area, as indicated by the shaded area in the figure.
This process eliminates the need for the monopolist to have complete information about its entire total revenue and total cost curves, which may be difficult or impractical to determine. Instead, it relies on the marginal approach and the graphical intersection of the MR and MC curves to ascertain the profit-maximizing quantity.