Answer to Question #165612 in Microeconomics for Hui

Question

Using marginal revenue and marginal cost curves under monopoly show the output levels

that maximize a) total revenue and b) total profit respectively. Are these two output levels

equal? Explain why or why not?

Answer 1

a). Monopoly's marginal revenue is maximized where MR=0.

b). And profit for a monopoly is maximized at the point where MR=MC. This is shown in the figure below.

From the figure above, point E is the profit maximization point. At this point, MR=MC. The firm produces Qm units and charges a price equal to Pm.

From the figure, total revenue is maximized at the point where MR=0. The quantity produced at this point is Q* units.

Clearly, we can see that the two outputs are not equal.