Question 26
Market StructuresIf a monopolist is attempting to maximize profit, which of the following should he attempt to do?
- A.Equate average cost to average revenue
- B.Equate marginal cost to marginal revenue
- C.Equate marginal cost to average revenue
- D.Fix price and output
- E.Equate price to total cost
Show the answer and explanation
Answer: B (Equate marginal cost to marginal revenue)
Explanation
Every profit-maximising firm, including a monopolist, produces where MC = MR.