Consider the following demand and cost information for a monopoly.
Table 11-1
Refer to Table 11-1. To maximize profit, the monopolist sets price at
A) $10
B) $15
C) $20
D) $25

Question

Consider the following demand and cost information for a monopoly.
Table 11-1
 Refer to Table 11-1. To maximize profit, the monopolist sets price at
A) $10 
B) $15 
C) $20 
D) $25

Quizplus · Accepted Answer

To maximize profit, a monopolist will produce where marginal revenue (MR) equals marginal cost (MC) and then charge the price corresponding to that quantity on the demand curve. In this case, we can easily calculate that MR = $20 - $0.01Q and MC = 2Q. Setting these equal and solving for Q, we get Q = 1000. Then, plugging this quantity into the demand curve P = $20 - $0.002Q, we find that the monopolist should charge a price of $18. Therefore, the answer is C which is the closest option to $18.

Consider the Following Demand and Cost Information for a Monopoly