The table below shows the demand schedule faced by a monopolist and the total cost incurred by it in producing each output level. The maximum profit earned by the monopolist is _____.
Table 9.5

A)$5
B)$40.80
C)$43.60
D)$44.20
E)$42.60

Question

The table below shows the demand schedule faced by a monopolist and the total cost incurred by it in producing each output level. The maximum profit earned by the monopolist is _____.​ ​
Table 9.5
​

A)$5​ 
B)$40.80 
C)$43.60 
D)$44.20 
E)$42.60

Quizplus · Accepted Answer

To maximize profits, a monopolist should produce the output level where Marginal Revenue (MR) equals Marginal Cost (MC) and then charge a price using the demand curve at that output level.

We can first calculate the MR column by taking the first difference of the Total Revenue (TR) column. For example, the MR at an output level of 4 units is TR(5) - TR(4) = $60 - $52 = $8.

Next, we can calculate the MC column by taking the first difference of the Total Cost (TC) column. For example, the MC at an output level of 4 units is TC(4) - TC(3) = $12 - $10 = $2.

To find the profit-maximizing output level, we need to find the point where MR = MC. From the table, we can see that this occurs at an output level of 6 units, where MR = $4 and MC = $4.

At an output level of 6 units, the monopolist can charge a price using the demand curve at that output level, which is $44.20.

To calculate the maximum profit, we can use the formula: 
Profit = (Price - Average Total Cost) x Quantity 
Profit = ($44.20 - $10) x 6 
Profit = $44.20 x 6 - $10 x 6 
Profit = $265.20 - $60 
Profit = $205.20

Therefore, the maximum profit earned by the monopolist is $44.20.

The Table Below Shows the Demand Schedule Faced by a Monopolist