Question

Demand and cost information for a monopoly

Q P TC
0 40 10
1 30 15
2 20 25
3 10 40
4 0 60
Refer to exhibit, Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profits by choosing price equal to :
a) $20
b) $0
c) $40
d) $30
e) $10

Answer 1

Question:

Please see the Demand and Cost information reproduced in the attached table

Answer:

The correct choice is A)

Profit if maximized where price is equal to $20.

At this price, MR = MC.

Please see the attached PDF.

Step-by-step explanation:

The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost:

That is, the point where MR = MC.

If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.

Cheers!