A profit-maximizing monopolist will produce the level of output at which:

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

Answer: (B)

Verified step by step guidance

1. Understand the goal of a profit-maximizing monopolist: to choose the output level where profit is maximized, which occurs when the additional revenue from selling one more unit equals the additional cost of producing that unit.
2. Recall the key condition for profit maximization: set marginal revenue (MR) equal to marginal cost (MC). This is because profit increases as long as MR > MC and decreases if MR < MC.
3. Recognize that price (P) does not generally equal marginal cost (MC) for a monopolist, unlike in perfect competition, because the monopolist faces a downward-sloping demand curve and must reduce price to sell more units.
4. Note that average total cost (ATC) and marginal cost (MC) equality relates to cost minimization, not profit maximization, and marginal revenue equals average total cost is not the profit-maximizing condition.
5. Therefore, the monopolist's profit-maximizing output is found by solving the equation: \(\text{MR} = \text{MC}\).