Question

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34.

At Q = 500, the firm's profit is:________.A. $13,000.
B. $15,000.C. $17,000.D. $30,000.

Answer 1

A) $13,000

Step-by-step explanation:

maximum profit = (Q x Average revenue) - (Q x average total cost)

maximum profit = (500 x $60) - (500 x $34) = $30,000 - $17,000 = $13,000

• marginal revenue = additional revenue generated by selling one more unit of output (we will not use it in this case)
• average revenue = total revenue / total output
• average total cost = total fixed and variable costs / total output
• profit = total revenue - total costs

Answer 2

A. $13,000

Step-by-step explanation:

Marginal Revenue is a revenue which is received from each extra unit sold. Average Revenue of is a revenue which is from by each unit on average basis.

Monopoly firm receives maximum marginal revenue and while incurring minimum cost. It tries to maximize the marginal benefit.

Firm's profit = Quantity ( Average revenue - Average Total cost ) = 500 units ( $60 - $34 ) = 500 units x 26 = $13,000