Suppose that the Yankee Cap Company is a profit-maximizing firm that has a monopoly in the production of baseball caps.The firm sells its baseball caps for $25 each.For this information, we can assume that the Yankee Cap Company is producing a level of output at which:
A)marginal revenue equals $25.
B)marginal cost equals marginal revenue.
C)average total cost equals $25.
D)average total cost is greater than $25.

Question

Quizplus · Accepted Answer

For a profit-maximizing monopoly firm, the optimal level of output is where marginal cost (MC) equals marginal revenue (MR). In this case, since the firm is selling each baseball cap for $25, MR also equals $25. Therefore, the firm is producing at a level where MC = $25 = MR.

Suppose That the Yankee Cap Company Is a Profit-Maximizing Firm