How does a monopolist maximize profit?
Understand the Problem
The question is asking about the strategies that a monopolist uses to maximize profit, which typically involves analyzing demand and cost structures to determine the optimal output level and pricing strategy.
Answer
A monopolist maximizes profit by setting output where marginal revenue equals marginal cost (MR = MC).
The final answer is that a monopolist maximizes profit by setting output where marginal revenue equals marginal cost (MR = MC).
Answer for screen readers
The final answer is that a monopolist maximizes profit by setting output where marginal revenue equals marginal cost (MR = MC).
More Information
A monopolist determines the quantity of output that maximizes profit by comparing marginal cost and marginal revenue. This condition is similar to competitive markets, but a monopolist can also influence the market price.
Tips
Students often forget that while MR = MC for profit maximization is similar to competitive markets, a monopolist sets the price based on this quantity, which is typically higher than in competitive markets.
Sources
- 9.2 How a Profit-Maximizing Monopoly Chooses Output and Price - openstax.org
- Profit Maximization for a Monopoly | Microeconomics - courses.lumenlearning.com
- Monopolists: Profit Maximization - Economics - CliffsNotes - cliffsnotes.com
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