Question

Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where a. marginal cost equals average revenue.b. marginal revenue equals average cost.c. average total cost equals average revenue.d. marginal revenue equals marginal cost.

Answer 1

Answer: Option (d) is correct.

Explanation:

Correct Option: Marginal revenue equals marginal cost.

Pure monopoly is a market situation in which there is a single firm who are producing the goods and these goods are the close substitute. There is no other firm in the market. So, the monopoly firm is the price setter.

The output level that is produced by the profit maximizing monopoly firm is at a point where marginal revenue is equal to the marginal cost. It is the same profit maximizing condition that a competitive firm also utilize to find their equilibrium level of output.