The figure below shows the total cost and total revenue curves for a monopolist. The profit-maximizing price charged by the monopolist is:
Figure 9.3

A)$70.
B)$80.
C)$23.33.
D)$20.
E)$40.

Question

The figure below shows the total cost and total revenue curves for a monopolist. The profit-maximizing price charged by the monopolist is:​ ​
Figure 9.3
​

A)$70. 
B)$80. 
C)$23.33. 
D)$20. 
E)$40.

Quizplus · Accepted Answer

To find the profit maximizing price, we need to locate the quantity where Marginal Revenue (MR) = Marginal Cost (MC). From the graph, we can see that the MC curve intersects the Total Revenue (TR) curve at a quantity of 3. At this quantity, the corresponding price on the demand curve is $30. Therefore, the MR curve also intersects the demand curve at a quantity of 3, and the corresponding price is $40. Since the monopolist wants to charge the highest price possible, the profit-maximizing price is $40. At this price, the monopolist produces a quantity of 3 and earns a profit equal to the difference between total revenue and total cost, which is ($40 x 3) - $70 = $50.

The Figure Below Shows the Total Cost and Total Revenue