The following table shows quantity,price,and marginal cost information for a monopoly.What price should the firm charge to maximize its profit?

A) $4
B) $5
C) $6
D) $7

Question

The following table shows quantity,price,and marginal cost information for a monopoly.What price should the firm charge to maximize its profit?

A) $4 
B) $5 
C) $6 
D) $7

Quizplus · Accepted Answer

The profit maximization rule for a monopoly is to set marginal revenue equal to marginal cost. Looking at the table, we can see that the marginal cost is increasing as output increases. To find the profit maximizing output, we need to find where marginal revenue equals marginal cost. In this case, the marginal revenue is given in the table as well and we can see that it is decreasing as output increases. When we compare the marginal cost to the marginal revenue, we can see that they intersect at a quantity of 5. At a quantity of 5, the marginal cost is $5 and the marginal revenue is $7, which means the monopolist will make a profit of $2 for each unit sold. Therefore, the price the monopolist should charge to maximize profit is $7.

The Following Table Shows Quantity,price,and Marginal Cost Information for a Monopoly.What