Exhibit 8-4 Demand and cost curves for a monopolist

-As shown in Exhibit 8-4,in order to maximize its profit (or minimize its loss),how much output should the monopoly produce?
A) 2 units per hour.
B) 4 units per hour.
C) 6 units per hour.
D) 8 units per hour.

Question

Exhibit 8-4 Demand and cost curves for a monopolist
 
-As shown in Exhibit 8-4,in order to maximize its profit (or minimize its loss),how much output should the monopoly produce?
A) 2 units per hour. 
B) 4 units per hour. 
C) 6 units per hour. 
D) 8 units per hour.

Quizplus · Accepted Answer

The monopoly should produce where the marginal revenue (MR) equals the marginal cost (MC) which is at output level Q = 4. At this output level, the price (P) is $12, the marginal cost (MC) is $8, and the marginal revenue (MR) is also $8. At any other output level, whether higher or lower, the monopoly would earn less profit or incur greater loss than at Q = 4. Therefore, the best choice is B, producing 4 units per hour.

Exhibit 8-4 Demand and Cost Curves for a Monopolist