If a profit-maximizing monopolist is observed, what valid deduction can be made regarding its operations?
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Answer: C. equated marginal revenue and marginal cost
Explanation
Profit maximization requires a firm to expand production until marginal revenue equals marginal cost. Monopolists face downward-sloping demand curves where price exceeds marginal revenue at all output levels. Equating marginal revenue and marginal cost identifies the unique profit-maximizing output quantity for any firm. A monopolist is a single seller dominating an industry with significant barriers to market entry. Marginal revenue is the change in total revenue resulting from selling one additional unit of output. Marginal cost represents the incremental expense incurred by producing one additional unit of output.
Monopoly pricing behavior creates deadweight loss in society because prices exceed marginal production costs. Antitrust regulations monitor monopolistic firms to prevent abuse of market power and excessive consumer pricing. Firms across all market structures rely on marginal analysis to determine optimal operational output levels. Monopolists do not maximize total revenue because maximum revenue occurs where marginal revenue equals zero. Monopolists set price above average cost to earn economic profit rather than equating price to average cost. Maximizing the difference between marginal revenue and marginal cost is not the profit maximization condition.
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