Exhibit 9-5 Demand and cost data for a monopolist

Refer to Exhibit 9-5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit?
A) 2.
B) 6.
C) 4.
D) 7.

Question

Exhibit 9-5 Demand and cost data for a monopolist

Refer to Exhibit 9-5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit?
A) 2. 
B) 6. 
C) 4. 
D) 7.

Quizplus · Accepted Answer

To maximize profit, the monopolist must produce where marginal revenue (MR) equals marginal cost (MC). At a quantity of 4, MR is equal to MC at $12 per unit. At this point, the monopolist can charge a price of $18 and earn a profit of $(18-12) x 4 = $24. At any other quantity, the marginal cost is either greater or less than the marginal revenue, resulting in a lower profit or even a loss. Therefore, the best output level is 4.

Exhibit 9-5 Demand and Cost Data for a Monopolist