A monopolist maximizes profit at the output rate where its total revenue equals total cost.

a. True

b. False

• This statement is false.

A monopolist is free to raise prices since the demand is inelastic and the product substitutability is very low. However, despite having this possibility, the optimal price and output depend on the market demand. In this scenario, a monopolist will maximize profits production an output in which marginal revenue equals marginal costs. In the intersection of these two curves, the profit-maximizing output will be established. Additionally, the price will be set by the intersection of the profit-maximizing output and the demand curve. At this point, the average total cost is below the market price and the monopolist is still able to obtain positive economic profits.