A monopolist is able to maximize its profits by:

• A. producing at the point where demand is perfectly elastic
• B. setting price equal to average total cost
• C. maximizing output regardless of cost
• D. producing the quantity where marginal revenue equals marginal cost

Answer: (D)

Verified step by step guidance

1. Understand the monopolist's profit maximization condition: A monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC).
2. Recall that marginal revenue is the additional revenue gained from selling one more unit, and marginal cost is the additional cost of producing one more unit.
3. Set up the equation for profit maximization: \(\text{MR} = \text{MC}\).
4. Analyze the demand curve to determine marginal revenue, noting that for a monopolist, MR is less than the price due to the downward-sloping demand curve.
5. Find the output level where the MR curve intersects the MC curve; this output level maximizes the monopolist's profit.