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?

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