Based on the diagram showing the demand, marginal revenue, and marginal cost curves for a monopolist, at which point does the monopolist maximize profit?

• A. Where demand equals marginal cost
• B. Where marginal cost is minimized
• C. Where demand equals marginal revenue
• D. Where marginal revenue equals marginal cost

Answer: (D)

Verified step by step guidance

1. Understand that a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This is because profit maximization occurs when the additional revenue from selling one more unit equals the additional cost of producing that unit.
2. Identify the marginal revenue curve and the marginal cost curve on the diagram. These curves represent the additional revenue and additional cost for each quantity produced.
3. Locate the point where the marginal revenue curve intersects the marginal cost curve. This intersection indicates the profit-maximizing quantity of output.
4. Note that the demand curve is not used directly to find the profit-maximizing quantity, but it helps determine the price the monopolist will charge at that quantity by looking vertically up to the demand curve.
5. Remember that the point where demand equals marginal cost is not the profit-maximizing point for a monopolist; this condition applies to perfectly competitive markets, not monopolies.