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Question

For a monopoly firm, if the profit-maximizing output level is Q and revenue-maximizing output level is R, then


A

Q=R

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B

Q<R

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C

Q>R

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D

Any of these can be true, depending on the context.

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Solution

The correct option is B

Q<R


Revenue-maximizing output corresponds to MR=0 and profit-maximizing output corresponds to MR=MC. Since MC>0, MR curve cuts the MC curve first before cutting the quantity axis. Hence, for a monopoly firm, the profit-maximizing output is always less than the revenue-maximizing output or Q<R


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