Question

A monopolist is producing a level of output at which price is $65, marginal revenue is $35, average total cost is $35, and marginal cost is $50. In order to maximize profit, the firm should:

Answer 1

Answer: Produce less.

Step-by-step explanation:

Given that,

Price = $65

Marginal revenue = $35

Average total cost = $35

Marginal cost = $50

From the information given, it was observed that marginal revenue is not equal to marginal cost. The profit maximizing condition for a monopolist is at a point where marginal revenue is equal to the marginal cost.

But here marginal cost is greater than the marginal revenue. So, the monopoly firm should produce less output in order to reduce the marginal cost.