Exhibit 9-14 The production level that will maximize the profit (or minimize loss)for the monopoly in Exhibit 9-14 is
A)0
B)22
C)17
D)12
E)more than 22

Question

Exhibit 9-14  The production level that will maximize the profit (or minimize loss)for the monopoly in Exhibit 9-14 is
A)0 
B)22 
C)17 
D)12 
E)more than 22

Quizplus · Accepted Answer

The profit maximizing output level for a monopoly is where marginal revenue (MR) is equal to marginal cost (MC) (i.e. MR=MC). In the graph, MR is represented by the red line while MC is represented by the blue line. We can see that MR intersects MC at quantity Q=17. At this point, the monopoly will be producing 17 units and will be charging a price of $44. At this level of output, the monopoly's total revenue (TR) will be $748 and its total cost (TC) will be $725, resulting in a profit of $23. Any output level below this (i.e. Q<17) will result in a smaller profit or a larger loss, while any output level above this (i.e. Q>17) will result in a smaller revenue and larger costs, reducing the profit. Therefore, the best choice is C - the monopoly should produce 17 units to maximize profit.

Exhibit 9-14 the Production Level That Will Maximize the Profit