Question

Assume a monopolist with​ downward-sloping demand and marginal revenue​ (MR) curves. The monopolist operates with standard marginal cost​ (MC) and average total cost​ (ATC) curves. How does a monopolist determine the​ profit-maximizing output level and the corresponding​ profit-maximizing price?

Answer 1

The monopolist's profit maximizing level of output and corresponding profit-maximizing price is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm utilizes in determining its equilibrium level of output. Therefore, as the price falls, the market's demand for output increases.