Suppose that a single-price monopolist knows the following information: The total profit being earned by this firm at the current level of output is

Question

Suppose that a single-price monopolist knows the following information:  The total profit being earned by this firm at the current level of output is

Quizplus · Accepted Answer

Since the monopolist is a single-price monopolist, total revenue is equal to price times quantity. From the information given, we know that the current level of output is 250 units sold at a price of $30 per unit. Therefore, total revenue is 250 x $30 = $7500.

We also know that total variable cost at the current level of output is $4500, which means that the marginal cost of producing one additional unit is equal to ($4500 - $4000) / (300 - 250) = $100.

To maximize profit, the monopolist should continue producing as long as marginal revenue is greater than or equal to marginal cost. At the current level of output, marginal revenue is equal to the price of the last unit sold, so MR = $30. Since MR >= MC, the monopolist should continue producing.

To find the profit earned by the monopolist, we need to calculate total cost. At a production level of 250 units, total cost is $4500 + ($100 x 250) = $7000.

Therefore, profit = total revenue - total cost = $7500 - $7000 = $500.

However, the question asks for total profit, not profit per unit. Since the monopolist sold 250 units, total profit is $500 x 250 = $1250000.

Thus, the correct answer is B, $3000.

Suppose That a Single-Price Monopolist Knows the Following Information