In order to sell at the rate of output in the market controlled by monopolist price is set where?

a) Price equals marginal cost

b) Marginal revenue equals marginal cost

c) Marginal revenue equals average total cost

d) Price equals average total cost

Answer is b

Anybody can explain how does its work, the logic behind the marginal revenue, marginal cost, average total cost in different strategies.

Thanks

Benny

Marginal Cost = the cost to make one more unit

Assumptions = Capacity, manpower, purchasing power, etc.

At a given capacity with set fixed cost, variable costs should increase in line with production

At a certain point with set fixed cost, variable costs will increase at a higher rate than production

I like to call this too many people in the plant and everyone is in the way so we can't work

Conclusion = Find the level when one additional person added does not increase production

Marginal Revenue = the revenue you receive by supplying one more unit

Assumptions = Price, demand etc.

At a certain point supply = demand, so each additional unit supplied returns the same revenue

At some point an increase in supply is greater than demand so price/revenue decrease

Conclusion = Find the level where supplying one additional unit lowers revenue