Question

The following data show the relationship between output, total costs, and total revenue

for a pure monopoly
Output TC
50
60
70
80
90
TR
$750 $1,000
800 1,100
950
1,250
1,200 1,450
1,300 1,500
Select one:
Time left 1:53
Within which of the following output ranges does the firm earn maximum economic
profits?
a. 50 to 60 units
b.60 to 70 units
c.70 to 80 units
d. 80 to 90 units

Answer 1

The firm earns maximum economic profits within the output range of 70 to 80 units. This range is where the gap between total revenue and total cost is highest, indicating the profit peak. MR=MC at 80 units signals the most profitable output level.

Step-by-step explanation:

To calculate the quantity of output that will provide the highest level of profit, one must examine the difference between total revenue (TR) and total cost (TC).

Profit is maximized at the quantity where this difference is the greatest. According to the given data, we can see that at an output between 70 and 80 units, the firm is making the highest profit, which is $90. This is the range where total revenue exceeds total cost by the largest margin. Maximum economic profits are realized in this range.

The concept of marginal revenue (MR) being equal to marginal cost (MC) is a condition for profit maximization.

In this scenario, it is suggested that profit is the same at Q=70 and Q=80, but the MR=MC rule would indicate that expanding production beyond the point where MR=MC will decrease profits.

The data reveals that the monopoly achieves maximum profit at an output level where MR=MC, which aligns with economic theory.