A monopolist maximizes profits by:

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

Answer: (C)

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 from selling one more unit, and marginal cost is the additional cost of producing one more unit.
3. Recognize that producing where demand is unit elastic corresponds to the point where total revenue is maximized, but this does not guarantee profit maximization because costs are not considered.
4. Note that maximizing total revenue regardless of costs ignores the cost side of the profit equation, so it is not the correct profit-maximizing strategy.
5. Understand that setting price equal to average total cost results in zero economic profit (break-even), but this is not the profit-maximizing output for a monopolist.