Use the following to answer question:
-(Table: Prices and Demand)Use Table: Prices and Demand.Professor Dumbledore has a monopoly on magic hats.The marginal cost of producing a hat is $18.Suppose Dumbledore can perfectly price-discriminate.How many hats will he produce?
A)3
B)4
C)5

Question

Use the following to answer question: 
-(Table: Prices and Demand)Use Table: Prices and Demand.Professor Dumbledore has a monopoly on magic hats.The marginal cost of producing a hat is $18.Suppose Dumbledore can perfectly price-discriminate.How many hats will he produce?
A)3 
B)4 
C)5

Quizplus · Accepted Answer

With perfect price discrimination, a monopolist will produce until marginal cost equals marginal revenue. In this scenario, since the marginal cost is $18, Dumbledore will produce hats up to the point where the price of the last hat is equal to $18. Without the table provided, we assume that at 5 hats, the price equals the marginal cost of $18, hence 5 hats will be produced.

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