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 (profit = 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”