Question

4. __________ The data below relate to a pure monopolist and the product it produces. If the firm currently sells 2 units of output at a price of $18, in order to maximize profit the firm should: Price Quantity Total Cost $22 0 $20 20 1 24 18 2 27 16 3 33 14 4 40 12 5 49 10 6 59 A. Leave its price and output unchanged. B. Lower its price to $14. C. Lower its price to $16. D. Raise its price to $20.

Answer 1

B. Lower its price to $14.

Step-by-step explanation:

Price Quantity Total Cost TR MR MC

$22 0 $20 - -

20 1 24 20 20 4

18 2 27 36 16 3

16 3 33 48 12 6

14 4 40 56 8 7

12 5 49 60 4 9

10 6 59 60 0 10

A pure monopolist maximizes profit at the point where marginal cost (MC) is equal to the marginal revenue (MR)

Therefore, in order to maximize profit the firm should lower its price to $14 because that is the only point where the MR of $8 is the closet to the MC of $7.