Answer the question on the basis of the following information for a pure monopolist: $\begin{array}{ccc}
\begin{array}{ccc}
\
\text { Output } & & \text { Total Cost } \
\hline
0 & & \$ 250 \
1 & & 260 \
2 & & 290 \
3 & & 350 \
4 & & 480 \
5 & & 700
\end{array}
\begin{array}{l}
\text { Product }\
\begin{array}{c}
\text { Price } \
\hline \$ 500 \
300 \
250 \
200 \
150 \
100
\end{array}
\end{array}
\end{array}$ How many units would the given profit-maximizing nondiscriminating monopolist produce?

Question

Quizplus · Accepted Answer

To determine the profit-maximizing output for the monopolist, we calculate the marginal cost (MC) and marginal revenue (MR) for each level of output and compare them. The monopolist will produce up to the point where MR = MC, provided MR ≥ MC for previous units.- Marginal Cost (MC) is the change in total cost when output is increased by one unit.- Marginal Revenue (MR) is the change in total revenue when output is increased by one unit.Calculating MC:- From 0 to 1 unit: MC = $260 - $250 = $10- From 1 to 2 units: MC = $290 - $260 = $30- From 2 to 3 units: MC = $350 - $290 = $60- From 3 to 4 units: MC = $480 - $350 = $130- From 4 to 5 units: MC = $700 - $480 = $220Calculating MR:- The total revenue (TR) at each level of output is (Price × Quantity).- At 0 units, TR = $0 (since no units are sold).- At 1 unit, TR = $500 × 1 = $500.- At 2 units, TR = $300 × 2 = $600.- At 3 units, TR = $250 × 3 = $750.- At 4 units, TR = $200 × 4 = $800.- At 5 units, TR = $100 × 5 = $500.- From 0 to 1 unit: MR = $500 - $0 = $500- From 1 to 2 units: MR = $600 - $500 = $100- From 2 to 3 units: MR = $750 - $600 = $150- From 3 to 4 units: MR = $800 - $750 = $50- From 4 to 5 units: MR = $500 - $800 = -$300The monopolist increases production as long as MR ≥ MC. Comparing MR and MC:- At 1 unit: MR = $500, MC = $10- At 2 units: MR = $100, MC = $30- At 3 units: MR = $150, MC = $60- At 4 units: MR = $50, MC = $130The profit-maximizing output is at 3 units because this is the last point where MR ≥ MC before MR falls below MC. At 4 units, MC exceeds MR, indicating that producing the fourth unit would reduce profit. Therefore, the monopolist would produce 3 units.

Answer the Question on the Basis of the Following Information