If producing is preferable to shutting down, how much output will a profit-seeking monopolist choose to produce?

• A. The quantity where marginal cost equals marginal revenue (MC = MR)
• B. The quantity where total revenue equals total cost (TR = TC)
• C. The quantity where price equals marginal cost (P = MC)
• D. The quantity where average total cost equals marginal cost (ATC = MC)

Answer: (A)

Verified step by step guidance

1. Understand that a profit-seeking monopolist chooses output to maximize profit, which occurs where the difference between total revenue and total cost is greatest.
2. Recall that marginal revenue (MR) is the additional revenue from selling one more unit, and marginal cost (MC) is the additional cost of producing one more unit.
3. Set up the profit maximization condition: the monopolist will produce the quantity where marginal revenue equals marginal cost, i.e., \(\text{MR} = \text{MC}\).
4. Note that producing where total revenue equals total cost (\(\text{TR} = \text{TC}\)) corresponds to breaking even, not necessarily maximizing profit.
5. Recognize that conditions like \(\text{P} = \text{MC}\) or \(\text{ATC} = \text{MC}\) do not generally determine the monopolist's profit-maximizing output, since monopolists have downward-sloping demand and set price above marginal cost.