Chapter 11, Problem 1RQ

To determine

To ascertain: Whether to choose a profit-maximizing price and the reason for not charging the highest price possible.

Answer to Problem 1RQ

Monopoly firm maximize its profit at the point when marginal revenue equal to its marginal cost.

Explanation of Solution

A monopoly firm will maximize its profit at the point where its marginal revenue as well as the marginal cost is equal. But this will result in the takeaway of consumer surplus. But perfect competition is where the price will be set up at the point, $MR=MC$

. A monopoly firm will drop its price in order to sell an extra output, based on the law of demand. Therefore, loss of customers and revenue will be caused when a monopolistic firm charges highest possible price. Two concepts are not the same. It can be shown as:

Economics Concept Introduction

Introduction: Profit maximization means fixing a price of a service or good where the total revenue is at greatest above total cost. The average price at which a goods or service traded which determines whether the trade is required to post additional margins is termed as settling price.