Question 40 of 50For a profitmaximizing monopolist Points 1

Solution

A profit-maximizing monopolist produce that output at which marginal cost equals marginal revenue. Thus, the profit-maximizing condition for monopolist is equality of marginal cost and marginal revenue.

However, monopolist, unlike a competitive producer, faces a downward sloping average revenue curve and his marginal revenue curve lies below the average revenue curve. Therefore, in monopoly equilibrium, when marginal cost is equal to marginal revenue, it is less than price (or average revenue).

Thus, for a profit-maximizing monopolist, Price > MC = MR

Hence, the correct answer is option (2).