Refer to Figure 15-4. At what level of output does the monopolist maximize profit?

• A. Where average total cost equals marginal cost
• B. Where marginal cost equals marginal revenue
• C. Where price equals marginal cost
• D. Where price equals average total cost

Answer: (B)

Verified step by step guidance

1. Understand the profit maximization rule for a monopolist: A monopolist maximizes profit by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC).
2. Identify the marginal revenue curve and the marginal cost curve on the graph (Figure 15-4). The point where these two curves intersect determines the profit-maximizing output level.
3. Note that average total cost (ATC) and price (P) are not the primary conditions for profit maximization, but they help determine profit or loss at the chosen output.
4. Confirm that at the output where MR = MC, the monopolist sets the price based on the demand curve corresponding to that quantity.
5. Summarize that the monopolist's profit-maximizing output is found at the intersection of MR and MC, not where ATC equals MC or where price equals MC or ATC.