The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of the output. Table 10.3
What is the profit-maximizing output level for the monopoly firm described in Table 10.3, if the firm is earning a positive economic profit?

Question

The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of the output. Table 10.3
 What is the profit-maximizing output level for the monopoly firm described in Table 10.3, if the firm is earning a positive economic profit?

Quizplus · Accepted Answer

To maximize profit, a monopoly firm produces at the point where marginal revenue (MR) equals marginal cost (MC). Looking at the table, we can calculate that MR is the same as the price for each unit of output until the 5th unit; after that, MR is lower than the price.

So, in this case, the profit-maximizing output level is where MR = MC. We can see that this occurs at 8 units, where MR = $25 and MC = $25. At this level of output, the firm is earning a positive economic profit of ($25 - $22) x 8 = $24.

The Table Given Below Shows the Prices Charged and Marginal