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,according to the profit maximization rule,at the profit-maximizing level of output,total cost is
A)$900.
B)$1,200.
C)$650.
D)$950.

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,according to the profit maximization rule,at the profit-maximizing level of output,total cost is
A)$900.
B)$1,200.
C)$650.
D)$950.

Quizplus · Accepted Answer

To find the profit-maximizing level of output, we need to compare marginal revenue (MR) to marginal cost (MC). The profit-maximizing quantity is where MR = MC, just before MC exceeds MR. We calculate MR and MC for each additional unit:- For the 1st unit: Revenue = $500, Cost = $400, Profit = $100.- For the 2nd unit: Revenue = $450 * 2 = $900, Cost = $650, Incremental Revenue = $400, Incremental Cost = $250, Profit = $250.- For the 3rd unit: Revenue = $400 * 3 = $1200, Cost = $950, Incremental Revenue = $300, Incremental Cost = $300, Profit = $250.- For the 4th unit: Revenue = $350 * 4 = $1400, Cost = $1300, Incremental Revenue = $200, Incremental Cost = $350, Profit = $100.The profit-maximizing level is where MR = MC, which occurs when moving from the 2nd to the 3rd unit. Therefore, at the profit-maximizing level of output (3 units), the total cost is $950.

Table 241 Monopoly Costs and Revenue In Table 24