Suppose the accompanying figure illustrates the demand curve facing a monopolist. Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm's:
A)marginal cost is $8.
B)marginal cost is $0.
C)average total cost is $8.
D)marginal cost is less than $8.

Question

Suppose the accompanying figure illustrates the demand curve facing a monopolist.  Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm's:
A)marginal cost is $8. 
B)marginal cost is $0. 
C)average total cost is $8. 
D)marginal cost is less than $8.

Quizplus · Accepted Answer

At a price of $8 per unit, the firm will sell 400 units, and we know that the marginal revenue of producing the 400ᵗʰ unit is $0 because for any straight-line demand curve, the associated marginal revenue curve has a horizontal intercept that is half the horizontal intercept of the demand curve. So, if the firm maximizes its profit by charging $8 per unit, it must be the case that the marginal cost of the 400ᵗʰ unit is zero.

Suppose the Accompanying Figure Illustrates the Demand Curve Facing a Monopolist