Question: a. When selling e-books, music on iTunes, and downloadable software, the marginal cost of producing and selling one more unit of output is essentially zero: MC = 0. Let's think about a monopoly in this kind of market. If the monopolist is doing its best to maximize profits, what will marginal revenue equal at a firm like this?
b. All firms are trying to maximize their profits (TR - TC). The rule from part a tells us that in the special case where marginal cost is zero, "profit maximization" is equivalent to which of the following statements?
- "Maximize total revenue"
- "Minimize total cost"
- "Minimize average cost"
- "Maximize average revenue"