[amp_mcq option1=”Lowest average cost” option2=”Average cost above optimum level of output” option3=”Average cost equals marginal cost” option4=”Marginal cost much below average cost” correct=”option3″]
The correct answer is C. Average cost equals marginal cost.
A monopoly firm is the only seller of a good or service in a market. It faces the demand curve for its product, which is downward-sloping. The firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost. At this quantity, average cost is equal to marginal cost.
Option A is incorrect because the lowest average cost is achieved at a higher level of output than the profit-maximizing level of output.
Option B is incorrect because average cost is above the optimum level of output.
Option D is incorrect because marginal cost is much below average cost at the profit-maximizing level of output.