Exhibit 8-4 Demand and cost curves for a monopolist As shown in Exhibit 8-4, in order to maximize its profit (or minimize its loss), what price should the monopoly charge for its product?
A) $60 per unit.
B) $90 per unit.
C) $120 per unit.
D) $150 per unit.

Question

Exhibit 8-4  Demand and cost curves for a monopolist  As shown in Exhibit 8-4, in order to maximize its profit (or minimize its loss), what price should the monopoly charge for its product?
A) $60 per unit. 
B) $90 per unit. 
C) $120 per unit. 
D) $150 per unit.

Quizplus · Accepted Answer

The profit-maximizing output is where marginal cost (MC) equals marginal revenue (MR). From the graph, we can see that at an output of 6 units (where Q=6), MC is equal to $120 and MR is equal to $150. This means that the monopolist should charge a price of $120 per unit in order to maximize its profit. At this price, the monopolist will produce and sell 6 units, earning a profit of ($120 - $80) x 6 = $240.

Exhibit 8-4 Demand and Cost Curves for a Monopolist as Shown