The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of the output. Table 24.3
What is the profit-maximizing output level for the monopoly firm described in Table 24.3, if the firm is earning a positive economic profit?
A)1 unit
B)3 units
C)5 units
D)8 units
E)9 units

Question

The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of the output. Table 24.3
 What is the profit-maximizing output level for the monopoly firm described in Table 24.3, if the firm is earning a positive economic profit?
A)1 unit 
B)3 units 
C)5 units 
D)8 units 
E)9 units

Quizplus · Accepted Answer

To maximize profit, the monopolist will produce output where marginal cost (MC) equals marginal revenue (MR). From the table, we can see that MR = Price only for the first 8 units of output. Beyond that, the MR becomes less than the price.

Therefore, to maximize profit, the firm will produce 8 units of output where MR = MC. At this output level, the price will be $30 and the cost will be $20, resulting in a profit of $10 per unit. This is the highest profit that the firm can earn, as producing more units will lead to lower profits due to decreasing MR. Hence, the correct answer is D) 8 units.

The Table Given Below Shows the Prices Charged and Marginal