A profit-maximizing monopolist that produces in the short run will: a) produce t

Question

A profit-maximizing monopolist that produces in the short run will:

a) produce the level of output where marginal revenue exceeds marginal cost by the largest amount.

b) increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.

c) produce the level of output where average total cost is at a minimum.

d) increase price as long as the average revenue exceeds the average total cost.

e) produce the level of output where average revenue exceeds average total cost by the largest amount.

Explanation / Answer

A monopolist is a sole producer in the market. It is able to produce at a higher price and a lower quantity then a competitive market. The production rule that it follows has marginal cost and marginal revenue equal to each other or at least the marginal revenue is greater than the marginal cost by minimum amount. If marginal revenue is greater than the marginal cost, increasing the production by 1 unit will increase revenue more than the increase in cost so it will continue to produce an increase output.

Option B is correct

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