Exhibit 13-3 A monopoly producer of canned iced coffee produces with the following costs:
Consumers demand iced coffee according to the following demand schedule:
Refer to Exhibit 13-3.At the profit-maximizing level of output,the firm's profits equal:

Question

Exhibit 13-3 A monopoly producer of canned iced coffee produces with the following costs:
 Consumers demand iced coffee according to the following demand schedule:
 Refer to Exhibit 13-3.At the profit-maximizing level of output,the firm's profits equal:

Quizplus · Accepted Answer

To determine the profit-maximizing level of output, we need to find the point where marginal revenue (MR) equals marginal cost (MC). From the demand schedule, we see that the price for each unit sold at the profit-maximizing output of 7 million is $2.50.

At this output level, the total cost is $12 million ($6 million fixed cost + $6 million variable cost), and the marginal cost is $2.

The total revenue is $17.50 million (7 million units sold at $2.50 each), and the marginal revenue is $1.50 (the change in revenue from selling one more unit at the profit-maximizing output).

Since MR = MC at an output of 7 million, the firm is maximizing its profit.

To calculate the profit, we subtract total cost from total revenue:

Profit = Total revenue - Total cost
Profit = $17.50 million - $12 million
Profit = $5.50 million or $10.25 per unit

Therefore, the firm's profits at the profit-maximizing level of output are $10.25, and the best choice is D.

Exhibit 13-3 a Monopoly Producer of Canned Iced Coffee Produces