Multiple Choice
If the monopolist's fixed cost is \$25, the monopoly's total economic profit when maximizing profit is:
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12. Monopoly
Monopoly Efficiency and Deadweight Loss
Multiple Choice
A profit-maximizing monopolist will continue expanding output as long as:
A
average revenue equals marginal cost
B
marginal revenue exceeds marginal cost
C
marginal cost exceeds marginal revenue
D
price equals marginal cost
Verified step by step guidance1
Understand the key condition for profit maximization in a monopoly: a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC).
Recall that marginal revenue is the additional revenue gained from selling one more unit, while marginal cost is the additional cost of producing one more unit.
Recognize that if marginal revenue exceeds marginal cost (MR > MC), producing more units will increase profit, so the monopolist should expand output.
If marginal cost exceeds marginal revenue (MC > MR), producing additional units would reduce profit, so the monopolist should reduce output.
Note that average revenue (AR) equals price (P) in a monopoly, but profit maximization depends on the relationship between MR and MC, not AR and MC.
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