Answer the question on the basis of the accompanying table, which shows the demand schedule facing a non discriminating monopolist $\begin{array}{|c|c|}
\hline \mathrm{P} & \mathrm{Qd} \
\hline \$ 10 & 1 \
\hline 7 & 2 \
\hline 5 & 3 \
\hline 3 & 4 \
\hline 1 & 5 \
\hline
\end{array}$ Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of
A) $10.
B) $7.
C) $5.
D) $3.

Question

Quizplus · Accepted Answer

A monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC) and charging the price that corresponds to this quantity on the demand curve. 
Since the monopolist has zero production costs, its marginal cost is also zero. The table shows that at a price of $5, the monopolist can sell three units of output with a total revenue of $15. To sell a fourth unit, the monopolist would have to lower the price to $3, which would reduce the revenue from the first three units to $12 ($5 + $5 + $2). Hence, the marginal revenue of selling the fourth unit would be only $3. So, the monopolist will not produce beyond the third unit, where MR equals MC (which is zero in this case). 
Thus, the profit-maximizing monopolist will set the price at $5.

Answer the Question on the Basis of the Accompanying Table