Question

For a monopoly (or firm with near monopoly power) at the profit-maximizing quantity, Price is greater than the __________.

A) Average Total Cost
B) Marginal Cost
C) Average Variable Cost
D) Average Revenue

Answer 1

For a profit-maximizing monopoly, the price charged for goods is greater than the Marginal Cost. They determine the price by where MR=MC and then use the demand curve to set a higher price, ensuring profits above average costs.

Step-by-step explanation:

For a monopoly (or firm with near monopoly power) at the profit-maximizing quantity, Price is greater than the Marginal Cost (B). A monopoly maximizes profit by producing where marginal revenue (MR) equals marginal costs (MC), and then charges a price based on the demand curve, which is above the average cost, ensuring economic profits. This profit-maximizing price is typically above the average cost of production, meaning the firm has a markup over the cost. Total revenue for the monopolist will be quantity sold multiplied by this price, and profits are the excess of total revenue over total costs.