The figure given below represents a monopoly firm producing perfume with downward sloping demand and marginal revenue (MR) curves.The products of this firm are sold in the competitive market by a retailer.Among the horizontal lines in the figure:
A - represents the marginal cost of per unit perfume production
B - represents the marginal cost of an independent perfume retailer
C - represents the sum of A and B
D - represents the marginal cost of the perfume monopolist for retailing its own output
E - represents the sum of A and D.

-Refer to Figure.What will be the profit maximizing output and price for the perfume monopolist if it is producing and retailing its output?
A)Output = 1.7 units and price = $6.3
B)Output = 2.3 units and price = $6.3
C)Output = 2.3 units and price = $5.4
D)Output = 1.7 units and price = $5

Question

The figure given below represents a monopoly firm producing perfume with downward sloping demand and marginal revenue (MR) curves.The products of this firm are sold in the competitive market by a retailer.Among the horizontal lines in the figure:
A - represents the marginal cost of per unit perfume production
B - represents the marginal cost of an independent perfume retailer
C - represents the sum of A and B
D - represents the marginal cost of the perfume monopolist for retailing its own output
E - represents the sum of A and D.

-Refer to Figure.What will be the profit maximizing output and price for the perfume monopolist if it is producing and retailing its output?
A)Output = 1.7 units and price = $6.3 
B)Output = 2.3 units and price = $6.3 
C)Output = 2.3 units and price = $5.4 
D)Output = 1.7 units and price = $5

Quizplus · Accepted Answer

The profit-maximizing output is where marginal cost equals marginal revenue. From the graph, we can see that this occurs at an output of 1.7 units. The profit-maximizing price is then found by adding the marginal cost to the marginal revenue at the profit-maximizing output. From the graph, we can see that the marginal cost at an output of 1.7 units is $5, and the marginal revenue is $1.3. Therefore, the profit-maximizing price is $5 + $1.3 = $6.3.

The Figure Given Below Represents a Monopoly Firm Producing Perfume