Refer to Exhibit 24-8. A profit-maximizing single-price monopolist will set the price at:

• A. the price where marginal cost equals average total cost
• B. the price where demand equals marginal cost
• C. the price where marginal revenue equals average revenue
• D. the price corresponding to the quantity where marginal revenue equals marginal cost

Answer: (D)

Verified step by step guidance

1. Understand that a profit-maximizing monopolist produces the quantity where marginal revenue (MR) equals marginal cost (MC). This is the fundamental rule for profit maximization in microeconomics.
2. Identify the marginal revenue curve and the marginal cost curve from the exhibit or given data. The intersection point of these two curves determines the profit-maximizing quantity (Q*).
3. Once the profit-maximizing quantity (Q*) is found, use the demand curve to find the price (P*) that consumers are willing to pay for that quantity. This price is found by moving vertically from Q* up to the demand curve.
4. Note that the price is not set where demand equals marginal cost or where marginal cost equals average total cost; instead, it is set based on the quantity where MR = MC and the corresponding price on the demand curve.
5. Summarize that the monopolist's optimal price is the price on the demand curve at the quantity where MR = MC, ensuring maximum profit.