Table 24.1 Monopoly Costs and Revenue
$$\begin{array} { | c | c | c | }
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 1 & \$ 500 & \$ 400 \
\hline 2 & \$ 450 & \$ 650 \
\hline 3 & \$ 400 & \$ 950 \
\hline 4 & \$ 350 & \$ 1,300 \
\hline 5 & \$ 300 & \$ 1,700 \
\hline
\end{array}$$ In Table 24.1,using the profit maximization rule,a monopolist will produce
A)1 unit.
B)3 units.
C)4 units.
D)5 units.

Question

Table 24.1 Monopoly Costs and Revenue
$$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 1 & \$ 500 & \$ 400 \
\hline 2 & \$ 450 & \$ 650 \
\hline 3 & \$ 400 & \$ 950 \
\hline 4 & \$ 350 & \$ 1,300 \
\hline 5 & \$ 300 & \$ 1,700 \
\hline
\end{array}$$ In Table 24.1,using the profit maximization rule,a monopolist will produce
A)1 unit.
B)3 units.
C)4 units.
D)5 units.

Quizplus · Accepted Answer

The profit maximization rule for a monopolist is to produce at the quantity where marginal revenue (MR) equals marginal cost (MC). To find the MR and MC, we first calculate the total revenue (TR) for each quantity by multiplying the quantity by the price, then calculate the marginal revenue by finding the change in TR as quantity increases, and similarly calculate the marginal cost by finding the change in total cost as quantity increases.Calculating the total revenue (TR) for each quantity:- For 1 unit: TR = $500 * 1 = $500- For 2 units: TR = $450 * 2 = $900- For 3 units: TR = $400 * 3 = $1200- For 4 units: TR = $350 * 4 = $1400- For 5 units: TR = $300 * 5 = $1500Calculating the marginal revenue (MR) for each additional unit:- MR from 1 to 2 units: ($900 - $500) = $400- MR from 2 to 3 units: ($1200 - $900) = $300- MR from 3 to 4 units: ($1400 - $1200) = $200- MR from 4 to 5 units: ($1500 - $1400) = $100Calculating the marginal cost (MC) for each additional unit:- MC from 1 to 2 units: ($650 - $400) = $250- MC from 2 to 3 units: ($950 - $650) = $300- MC from 3 to 4 units: ($1300 - $950) = $350- MC from 4 to 5 units: ($1700 - $1300) = $400The monopolist will produce where MR = MC. From the calculations, MR equals MC at 3 units ($300 = $300). Therefore, the monopolist will produce 3 units to maximize profit.

Table 241 Monopoly Costs and Revenue In Table 24