works without any need to calculate total revenue and total cost. Thus, a profit-maximizing monopoly should

follow the rule of producing up to the quantity where marginal revenue is equal to marginal cost—that is, MR =

MC. This quantity is easy to identify graphically, where MR and MC intersect.

WORK IT OUT

Maximizing Profits
If you find it counterintuitive that producing where marginal revenue equals marginal cost will maximize profits,

working through the numbers will help.

Step 1. Remember, we define marginal cost as the change in total cost from producing a small amount of

additional output.

Step 2. Note that in Table 9.3, as output increases from 1 to 2 units, total cost increases from $500 to $775. As a

result, the marginal cost of the second unit will be:

Step 3. Remember that, similarly, marginal revenue is the change in total revenue from selling a small amount of

additional output.
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