Which of the following statements is true for a monopolist at the profit-maximizing output level?

• A. Marginal revenue equals price.
• B. Average total cost equals marginal cost.
• C. Marginal revenue equals marginal cost.
• D. Price equals marginal cost.

Answer: (C)

Verified step by step guidance

1. Recall the profit-maximizing condition for a monopolist: a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This is because profit increases as long as the revenue from selling one more unit exceeds the cost of producing it, and stops increasing when MR = MC.
2. Understand that for a monopolist, marginal revenue is not equal to price because the monopolist faces a downward-sloping demand curve. To sell additional units, the monopolist must lower the price, which causes marginal revenue to be less than price.
3. Recognize that average total cost (ATC) equals marginal cost (MC) only at the minimum point of the ATC curve, which is not necessarily the profit-maximizing output for a monopolist. Therefore, ATC = MC is not generally true at the profit-maximizing output.
4. Note that price equals marginal cost (P = MC) is a condition typical of perfect competition, not monopoly. In monopoly, price is generally greater than marginal cost because the monopolist has market power to set prices above MC.
5. Conclude that the true statement for a monopolist at the profit-maximizing output is that marginal revenue equals marginal cost (MR = MC). This is the key condition that determines the monopolist's output level.