Question

the accompanying graph depicts the demand and marginal revenue (mr) curves in a market served by a monopolist. the monopolist faces a constant marginal cost of $4. what quantity will the monopolist produce to maximize its profits?

Answer 1

The monopolist will produce the quantity where the marginal cost (MC) equals the marginal revenue (MR). In this case, the monopolist will produce and maximize profits at a quantity of Q = 12 units.

Step-by-step explanation:

In a monopolistic market, the profit-maximizing quantity occurs where the marginal cost (MC) equals the marginal revenue (MR). The accompanying graph allows us to identify this point. Given a constant marginal cost of $4, the monopolist maximizes profits when the MC = MR. In the graph, locate the intersection of the marginal cost curve and the marginal revenue curve, which represents the profit-maximizing quantity.

Mathematically, the profit-maximizing condition is expressed as MC = MR. In this scenario, let's assume the MC curve intersects the MR curve at Q = 12. To verify, check if the corresponding MC at Q = 12 equals $4, the constant marginal cost. If MC(Q=12) = $4, then the monopolist produces 12 units to maximize profits. This occurs because producing any additional units would result in higher marginal costs than marginal revenues, reducing overall profit.

Therefore, the monopolist maximizes its profits by producing 12 units, as this is the quantity at which the marginal cost equals the constant marginal revenue. This strategic production decision ensures the monopolist optimizes its profit in a market characterized by its pricing power.