Scenario 15-2

A monopoly firm maximizes its profit by producing 500 units output (so Q = 500).At that level of output, its marginal revenue is $32, its average revenue is $42, and its average total cost is $36.
-Refer to Scenario 15-2.What is the firm's maximum profit

Question

Scenario 15-2
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A monopoly firm maximizes its profit by producing 500 units output (so Q = 500).At that level of output, its marginal revenue is $32, its average revenue is $42, and its average total cost is $36.
-Refer to Scenario 15-2.What is the firm's maximum profit

Quizplus · Accepted Answer

To find the firm's maximum profit, we need to use the profit maximization rule, which states that a firm should produce at the quantity where marginal revenue is equal to marginal cost. Since the problem does not give us any information about the firm's marginal cost, we can use the fact that the average total cost is $36 to estimate it. We know that at the profit-maximizing level of output, marginal revenue is $32. Therefore, the firm's marginal cost must also be $32 at that level of output because profit is maximized when MR = MC.

Now we can find the firm's total revenue by multiplying its average revenue (which is the same as its marginal revenue in a monopoly) by the quantity produced:

Total Revenue = Average Revenue x Quantity 
TR = $42 x 500 
TR = $21,000

Next, we can find the firm's total cost by multiplying the average total cost by the quantity produced:

Total Cost = Average Total Cost x Quantity 
TC = $36 x 500 
TC = $18,000

Finally, we can find the firm's profit by subtracting total cost from total revenue:

Profit = Total Revenue - Total Cost 
Profit = $21,000 - $18,000 
Profit = $3,000

Therefore, the firm's maximum profit is $3,000.

Scenario 15-2 ​​

Scenario 15-2