The following data pertains to a monopoly firm's demand and costs per quarter. If the total fixed costs are $5,000 per quarter, what will be the firm's maximum profit output?

Question

Quizplus · Accepted Answer

The monopoly's profit-maximizing output is where MR = MC. From the table, at Q = 30,000, MR = $7.00 and MC = $7.00, therefore this is the profit-maximizing output. To find the corresponding price, we look at the demand equation Q = 500,000 - 5P, which can be rewritten as P = (500,000 - Q)/5. Plugging in Q = 30,000, we get P = $7.00. Finally, we calculate the total revenue at this output level, which is TR = Q*P = 30,000*$7.00 = $210,000. From here, we can calculate total cost as TC = FC + VC = $5,000 + $120,000 = $125,000. Therefore, the maximum profit is Pi = TR - TC = $210,000 - $125,000 = $85,000.

The Following Data Pertains to a Monopoly Firm's Demand and Costs