Multiple choice

A monopolist is able to maximize his profits when

  1. his output is maximum

  2. he charges a high price

  3. his average cost is minimum

  4. his marginal cost is equal to marginal revenue
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A monopolist maximizes profit by producing the quantity where marginal cost equals marginal revenue (MC = MR). At this point, the additional revenue from selling one more unit equals the additional cost of producing it. Producing beyond this point would reduce profit since each extra unit would cost more than it earns in revenue. The monopolist does not maximize at minimum average cost or maximum output - profit maximization occurs specifically at the MC = MR intersection.

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