Exhibit 8-2 Demand and cost information for a monopoly

-Refer to Exhibit 8-2.Using the rule that focuses on the marginal approach to maximising profits,the monopolist maximises profit by choosing price equal to:

Question

Exhibit 8-2 Demand and cost information for a monopoly
 
-Refer to Exhibit 8-2.Using the rule that focuses on the marginal approach to maximising profits,the monopolist maximises profit by choosing price equal to:

Quizplus · Accepted Answer

The monopolist should choose the price where marginal revenue equals marginal cost. Looking at the table, at a price of $20, the monopoly has a marginal revenue of $10 and a marginal cost of $10. This is the price where it maximizes its profit. At any other price, either the marginal revenue will be less than the marginal cost, resulting in a loss or the marginal cost will be less than the marginal revenue, resulting in a higher profit if they reduce the prices. Therefore, the monopolist should choose a price of $20 to maximize its profit.

Exhibit 8-2 Demand and Cost Information for a Monopoly