The following table provides information on the price,quantity,and average cost for a monopoly.At what price will the firm maximize its profit?
A)$1
B)$2
C)$3
D)$4

Question

The following table provides information on the price,quantity,and average cost for a monopoly.At what price will the firm maximize its profit? 
A)$1 
B)$2 
C)$3 
D)$4

Quizplus · Accepted Answer

To find the price at which the firm maximizes profit, we need to calculate the total revenue and total cost at each price level, and then subtract total cost from total revenue to obtain total profit. Looking at the table, we can see that at a price of $3, the quantity demanded is 2, and the average cost is also $3. At this price level, the total revenue is $6 (2 units x $3 per unit), and the total cost is $6 (2 units x $3 average cost per unit). Therefore, the total profit at this price level is $0, which is the highest profit level in the table. At prices lower or higher than $3, the firm would earn negative profits. Therefore, the firm should choose to sell its product at $3 in order to maximize its profit.

The Following Table Provides Information on the Price,quantity,and Average Cost