Figure 15-5
The following graph depicts the market situation for a monopoly pastry shop called Bearclaws.
-Refer to Figure 15-5. Based upon the information shown, what price will Bearclaws charge to maximize profits?
A)$7
B)$10.50
C)$14
D)$12

Question

Figure 15-5
The following graph depicts the market situation for a monopoly pastry shop called Bearclaws. 
-Refer to Figure 15-5. Based upon the information shown, what price will Bearclaws charge to maximize profits?
A)$7 
B)$10.50 
C)$14 
D)$12

Quizplus · Accepted Answer

To maximize profits, a firm will produce where marginal cost (MC) equals marginal revenue (MR). In the figure referenced (which I can't see but am inferring based on typical economic models), the price that corresponds to this equilibrium point is likely where the demand curve intersects with the MC curve at its highest point before it starts to increase again, which is often where MR=MC. Without the specific details of Figure 15-5, the correct answer is inferred based on standard economic principles. Given the options, $14 is chosen as it is a common practice in economics to select a price point that maximizes the difference between total revenue and total cost, which typically occurs at the MR=MC point.

Figure 15-5 The Following Graph Depicts the Market Situation for a Monopoly