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-(Table: Demand and Total Cost)Use Table: Demand and Total Cost.Lenoia runs a natural monopoly firm producing electricity for a small mountain village.The table shows Lenoia's demand and total cost of producing electricity.The profit-maximizing quantity of electricity for her to produce is _____ megawatts.
A)2
B)3
C)4

Question

Use the following to answer question: 
-(Table: Demand and Total Cost)Use Table: Demand and Total Cost.Lenoia runs a natural monopoly firm producing electricity for a small mountain village.The table shows Lenoia's demand and total cost of producing electricity.The profit-maximizing quantity of electricity for her to produce is _____ megawatts.
A)2 
B)3 
C)4

Quizplus · Accepted Answer

The profit-maximizing output level is where marginal cost equals marginal revenue. From the table, we can see that at an output of 4, the marginal cost is $6 and the marginal revenue is $10, which means that producing 4 megawatts of electricity will maximize Lenoia's profits. At any other output level, either the marginal cost will be greater than the marginal revenue (resulting in negative profits) or the marginal revenue will be greater than the marginal cost (meaning Lenoia could increase profits by producing more). Therefore, the best choice is to produce 4 megawatts of electricity.

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