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.
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:
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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