Table 15-2
A monopolist faces the following demand curve:

-Refer to the table.If the monopolist has total fixed costs of $60 and has a constant marginal cost of $18,what is the profit-maximizing level of production
A)2 units
B)3 units
C)4 units
D)5 units

Question

Table 15-2
A monopolist faces the following demand curve:

-Refer to the table.If the monopolist has total fixed costs of $60 and has a constant marginal cost of $18,what is the profit-maximizing level of production
A)2 units 
B)3 units 
C)4 units 
D)5 units

Quizplus · Accepted Answer

To find the profit maximizing level of production, the monopolist will produce the quantity where marginal revenue equals marginal cost. From the demand curve, we can see that the monopolist's marginal revenue (which is the additional revenue generated by selling one more unit) is equal to the price of the previous unit sold. Using this information, we can find the marginal revenue column for the table:

Quantity     Price    Total Revenue   Marginal Revenue
---------------------------------------------------------
  1            $70         $70                 --
  2            $60        $120                -$10
  3            $50        $150                -$10
  4            $40        $160                -$10
  5            $30        $150                -$10

As we can see, marginal revenue is constant at -$10 for all levels of production. We also know that the constant marginal cost is $18. To find the profit-maximizing quantity, we need to find the point where marginal revenue equals marginal cost:

MR = MC
-$10 = $18
Q = 3

So the monopolist should produce 3 units to maximize profit, which is answer B.

Table 15-2 A Monopolist Faces the Following Demand Curve