Final answer:
A monopoly firm determines its profit-maximizing output where marginal revenue equals marginal cost by following a three-step process involving graphing curves, selecting output levels, and referencing the demand curve for pricing.
Explanation:
The monopoly firm sets its output where marginal revenue equals marginal cost. This point of intersection is crucial in determining the profit-maximizing quantity. By identifying this point, the firm can then refer to the demand curve to determine at what price the output will be sold.
The three-step process involves:
- Calculating and graphing the firm's marginal revenue, marginal cost, and demand curves.
- Selecting the output level where MR and MC curves intersect.
- Using the demand curve to establish the price at which the determined output level can be sold.
Therefore, a monopoly firm optimizes its profit by strategically setting both output quantity and selling price based on these critical economic principles.
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