Table 11-1
-Table 11-1 shows demand and total cost schedules for the monopolist Monopoliteria.Monopoliteria's profit-maximizing price per unit in dollars is
A)1
B)3
C)5
D)4

Question

Table 11-1 
-Table 11-1 shows demand and total cost schedules for the monopolist Monopoliteria.Monopoliteria's profit-maximizing price per unit in dollars is
A)1 
B)3 
C)5 
D)4

Quizplus · Accepted Answer

To maximize profit, the monopolist will produce where marginal revenue (MR) equals marginal cost (MC). Looking at the table, we can calculate MR by finding the change in total revenue for each unit sold. For example, when going from selling 1 unit to 2 units, total revenue increases from $10 to $16, so MR for the second unit is $6. Following this logic, we can fill in the MR column in the table.

| Quantity | Price | Total Revenue | Marginal Revenue | Total Cost | Marginal Cost | Profit |
|----------|-------|---------------|-----------------|------------|---------------|--------|
| 1        | 6     | 6             | -               | 2          | -             | 4      |
| 2        | 5     | 12            | 6               | 6          | 4             | 6      |
| 3        | 4     | 12            | 0               | 10         | 4             | 2      |
| 4        | 3     | 12            | 0               | 16         | 6             | -4     |
| 5        | 2     | 10            | -2              | 26         | 10            | -16    |
| 6        | 1     | 6             | -4              | 40         | 14            | -34    |

We can see from the table that MR decreases as more units are sold, while MC increases. The monopolist will continue to produce as long as selling an additional unit adds to the total profit. When MR = MC, producing additional units will not increase profit anymore. This happens at the third unit in this case, where MR = 0 and MC = 4. Thus, the profit-maximizing quantity is 3 units.

To find the profit-maximizing price, we can look back at the table and see which price corresponds to a quantity of 3 units. At a price of $4 per unit, the monopolist will sell 3 units and earn a profit of $2 (12 - 10). Therefore, the profit-maximizing price per unit is $5.

Table 11-1 -Table 11-1 Shows Demand and Total Cost Schedules for the Schedules