A monopolist is maximizing profit at an output rate of 1,000 units per month. At this output rate, the price that its customers are willing and able to pay is $8 per unit, average total cost is $5 per unit, and marginal cost is $6 per unit. It may be concluded that at this monthly output rate, marginal revenue is
A) $5 per unit, and the monopolist earns zero economic profits.
B) $6 per unit, and the monopolist earns economic profits of $2,000 per month.
C) $6 per unit, and the monopolist earns economic losses of $1,000 per month.
D) $6 per unit, and the monopolist earns economic profits of $3,000 per month.

Question

Quizplus · Accepted Answer

Marginal revenue is equal to marginal cost at the profit-maximizing output rate. In this case, marginal cost is $6 per unit, so marginal revenue must also be $6 per unit. The monopolist is earning economic profits of $3,000 per month because total revenue is $8,000 per month (1,000 units x $8 per unit) and total cost is $5,000 per month (1,000 units x $5 per unit).

A Monopolist Is Maximizing Profit at an Output Rate of 1,000