Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

Question

BlackTom AI · Accepted Answer

First, let’s identify what the monopolist maximizes: profit occurs where marginal revenue (MR) equals marginal cost (MC).
Option a. Z — If Z were the MR=MC point, it would be the profit-maximizing output; however, in this figure the MR=MC condition is represented at a different quantity by construction, so Z is not the profit-maximizing choice here.
Option b. O — This output level is not typically marked as the MR=MC intersection in the diagram, and using O would imply a different MR vs MC relationship that does not satisfy MR = MC, hence not profit-maximizing.
Option c. W — The point W corresponds to the quantity where the MR curve intersects the MC curve in this diagram, i.e., MR = MC. At this output, the firm maximizes the difference between total revenue and total cost, yielding the highest possible profit for the monopolist given the graph.
Option d. T — At T, the MC and MR relationship implies either MR > MC or MR < MC in a way that would allow increasing output (or decreasing it) to raise profit, so this is not the profit-maximizing level.
In summary, the profit-maximizing output for a monopolist is where MR equals MC, and in the provided diagram this condition is fulfilled at W, not at Z, O, or T. Therefore, W is the correct output level for profit maximization.

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

View Explanation

Log in for full answers

Similar Questions

Use the model above to answer the following question. The profit maximizing quantity for the monopoly is?