Question

The table below shows the marginal revenue and costs for a monopolist. Demand, Costs, and Revenues Price Quantity Marginal Revenue (dollars) Demanded (dollars) $130 200 $110 120 300 90 110 400 70 100 500 SO 90 600 30 80 700 10 Marginal Cost Average Total Cost (dollars) dollars) $25 $139.00 32 103.30 40 87.50 50 8 0.00 62 77.00 77 7 7.00 What is the monopolist's profit at the profit maximizing level of output? $10,000 $50,000 $80,000 $0

Answer 1

A profit maximizing Monopoly produces at the point where marginal revenue is equal to marginal cost and sets its profit maximizing price at the point the profit-maximizing quantity lies on the demand curve.

For this monopoly, profit maximizing output = 500 because at that quantity, MR = MC = $50. At that profit maximizing output level, price = $100 and ATC = $80.

Therefore, total revenue = (price * quantity) = $(100*500) = $50,000 and Total cost = (ATC* quantity) = $(80*500) = $40,000

Profit = total revenue - total cost = $(50,000 - 40,000) = $10,000

Answer: option A