The correct answer is D. His marginal cost is equal to marginal revenue.
A monopolist is the only seller of a good or service in a market. This means that they have a great deal of power over the price they charge and the quantity they produce. In order to maximize their profits, a monopolist will produce the quantity of output where marginal revenue is equal to marginal cost.
Marginal revenue is the additional revenue that a firm earns by selling one more unit of output. Marginal cost is the additional cost that a firm incurs by producing one more unit of output. When marginal revenue is equal to marginal cost, the firm is producing the quantity of output where the additional revenue from selling one more unit of output is equal to the additional cost of producing one more unit of output. This is the point where the firm is maximizing its profits.
Option A is incorrect because a monopolist’s profits will not be maximized if they produce the maximum amount of output. This is because the marginal revenue from selling additional units of output will eventually decline as the firm produces more and more output. At some point, the marginal revenue from selling an additional unit of output will be less than the marginal cost of producing that unit of output. In this case, the firm will be better off producing less output.
Option B is incorrect because a monopolist’s profits will not be maximized if they charge a high price. This is because the demand for a monopolist’s product is downward-sloping. This means that if the monopolist charges a high price, they will sell fewer units of output. At some point, the additional revenue from charging a higher price will be less than the additional cost of producing the additional units of output. In this case, the firm will be better off charging a lower price.
Option C is incorrect because a monopolist’s profits will not be maximized if they have the lowest average cost. This is because the average cost of production is not relevant to the firm’s decision about how much output to produce. The firm will produce the quantity of output where marginal revenue is equal to marginal cost, regardless of their average cost.
In conclusion, a monopolist is able to maximize their profits when their marginal cost is equal to their marginal revenue.