The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.

-Refer to the figure above.If the monopolist faces a constant marginal cost of $2,at what price should it sell its output?

Question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.
 
-Refer to the figure above.If the monopolist faces a constant marginal cost of $2,at what price should it sell its output?

Quizplus · Accepted Answer

The profit-maximizing output level for the monopolist occurs where marginal revenue equals marginal cost.

In this case, we know the marginal cost is constant at $2. We can find the corresponding output level by looking at the point where the marginal cost intersects the marginal revenue curve.

In the figure, we can see that the intersection point occurs at a quantity of 4. At this quantity, the price that the monopolist can charge is $10, since this is the price that corresponds to a quantity of 4 units on the demand curve.

Therefore, the monopolist should sell its output at a price of $10 in order to maximize profits.

The Following Figure Shows the Marginal Revenue (MR) and Demand