Exhibit 9.5

-Refer to Exhibit 9.5,which shows the cost and revenue curves for a monopolist.Assume that the marginal cost of production is equal to the average total cost at the profit-maximizing output level.The maximum profit for this monopolist if he does not practice price discrimination is _____

Question

Exhibit 9.5

-Refer to Exhibit 9.5,which shows the cost and revenue curves for a monopolist.Assume that the marginal cost of production is equal to the average total cost at the profit-maximizing output level.The maximum profit for this monopolist if he does not practice price discrimination is _____

Quizplus · Accepted Answer

The profit-maximizing output level is where marginal revenue (MR) equals marginal cost (MC). Looking at the graph, this occurs at an output level of 6 units. At this output level, the price would be $19. The average total cost (ATC) curve intersects the demand curve at a price of $14, which means that the monopolist would charge $14 if it was limited to producing at an output level where ATC equals demand. However, at an output level of 6 units, the ATC is below the demand curve, which means that the monopolist can charge a higher price and still sell all 6 units. The monopolist's profit would be the difference between the revenue received from selling 6 units at a price of $19 ($114) and the cost of producing 6 units ($100), which is $14.

Exhibit 9.5 -Refer to Exhibit 9.5,which Shows the Cost and Revenue Curves