The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC. If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.

What is the monopolist’s profit-maximizing output?

The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve. If that price is above average cost, the monopolist earns positive profits.

How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?

A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm should produce the extra unit.

Where does a profit-maximizing monopolist selects its output level?

The Monopolist’s Demand Curve and Marginal Revenue So, a profit-maximizing monopolist chooses the output level at which marginal cost is equal to marginal revenue—not equal to price.

What is the profit-maximizing rule?

In economics, the profit maximization rule is represented as MC = MR, where MC stands for marginal costs, and MR stands for marginal revenue. Companies are best able to maximize their profits when marginal costs — the change in costs caused by making a new item — are equal to marginal revenues.

How do you determine the profit-maximizing level of output?

The monopolist’s profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.

What is the profit-maximizing output for a perfectly competitive firm?

The profit-maximizing choice for a perfectly competitive firm will occur at the level of output where marginal revenue is equal to marginal cost—that is, where MR = MC. This occurs at Q = 80 in the figure.

How many units should the profit-maximizing firm produce?

In order to maximize profit, the firm should produce where its marginal revenue and marginal cost are equal. The firm’s marginal cost of production is $20 for each unit. When the firm produces 4 units, its marginal revenue is $20. Thus, the firm should produce 4 units of output.

Where does a profit maximizing monopolist selects its output level?