Question

How can a monopolist identify the profit-maximizing level of output if it knows its marginal revenue and marginal costs?

Short answer

A monopolist can identify the profit-maximizing level of output if it knows its marginal revenue and marginal costs is the point where the two curves intersect each other.

Step-by-step solution

Meaning of monopolist

A monopoly is a situation in which one firm produces all the output in a market. A monopolist is a cost maker not cost taker. He decides the price of the commodities based on the demand in the market.

Identifying the profit-maximizing output.

The marginal revenue curve is additional when one more unit is sold and the marginal cost curve is the additional cost when one more unit is produced. A monopolist can identify the profit-maximizing level of output if it knows its marginal revenue and marginal costs is the point where the two curves intersect each other. The graph showing the profit-maximizing output is,

The profit-maximizing level of output is$4$since the two curves intersect at that point.