The following table shows some costs and prices faced by an airplane manufacturer.
Table 7.1-Monopoly costs and revenue
-In Table 7.1,profit maximization is achieved at a production rate of:
A) 1 plane per month.
B) 2 planes per month.
C) 3 planes per month.
D) 4 planes per month.

Question

The following table shows some costs and prices faced by an airplane manufacturer.
Table 7.1-Monopoly costs and revenue 
-In Table 7.1,profit maximization is achieved at a production rate of:
A) 1 plane per month. 
B) 2 planes per month. 
C) 3 planes per month. 
D) 4 planes per month.

Quizplus · Accepted Answer

Profit maximization occurs where marginal revenue (MR) equals marginal cost (MC). At a production rate of 3 planes per month, MC is $2.5 million and MR is $1.5 million, which means the manufacturer is earning a profit of $1 million per plane. At any other production rate, either the manufacturer's costs will exceed the revenue or the manufacturer will be able to increase revenue by producing more planes. Therefore, the best choice for the manufacturer is to produce 3 planes per month.

The Following Table Shows Some Costs and Prices Faced by an Airplane