Question

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where

A. MC intersects the demand curve.
B. MR intersects the demand curve.
C. MR exceeds MC by the greatest amount.
D. MR = MC.

Answer 1

To maximize total surplus in a monopoly, the most efficient level of output is where MR = MC, which coincides with the profit-maximizing rule for monopolies and is the correct option D.

Step-by-step explanation:

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where MR = MC.

This rule leads to the most efficient allocation of resources in the market, where marginal revenue (MR) is equal to marginal cost (MC). At this point, the additional benefit from producing one more unit of output precisely equals the additional cost, ensuring that no resources are wasted.

Monopolies typically produce where their marginal revenue equals their marginal cost to maximize profits, and this point of production also happens to coincide with the optimal outcome for total surplus in the market. Therefore, the correct option is D. MR = MC, and this should be mentioned correct option in final answer.