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

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BlackTom AI · Accepted Answer

First, interpret the question: a monopolist maximizes profit where marginal revenue (MR) equals marginal cost (MC). The figure shows MR and MC curves and marks a specific quantity with vertical reference lines.
Next, identify the profit-maximizing output from the diagram: locate the point where MR intersects MC. In the figure, this intersection occurs at the vertical line labeled W on the quantity axis, indicating the corresponding output level is W.
Since the question presents only one option, labeled as 'c. W', we focus on whether W is indeed the output where MR = MC. The standard rule for profit maximization in monopoly is MR = MC, and the graph shows the intersection at W, which aligns with the theoretical principle.
To explain why other potential outputs would be wrong (in a broader sense): outputs where MR > MC would yield additional profit from producing more units, while outputs where MR < MC would reduce profit by producing too many units. The profit-maximizing point is precisely where MR and MC touch, which the diagram marks at W. 
In summary, by the graph’s construction, the monopolist would maximize profit at the quantity corresponding to W, since that is where MR equals MC on the illustrated curves.

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

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