Question

Suppose Frank is a monopolist in the garden gnome market and is producing the profit-maximizing level of output. Suppose further that at this level of production his average total cost is $150, his average variable cost is $130, and the price of one of his gnomes is $150. At his current level of production, Frank's marginal cost is _____ $150..

Answer 1

Answer: A. less than

Step-by-step explanation:

Monopolists are in a market where they have to charge less in order to sell more of their goods. This means that their marginal revenue is less than the price as they will make less per good sold.

If the price of one of Frank's Gnomes is $150, this means that his marginal revenue is less than $150. As he is producing the profit-maximizing level of output, this means that his marginal costs are equal to his marginal revenue.

With his marginal revenue being less than $150, his marginal costs will be less than $150 as well.