Table 24.1 Monopoly Costs and Revenue
$$\begin{array} { | c | c | c | }
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 1 & \$ 500 & \$ 400 \
\hline 2 & \$ 450 & \$ 650 \
\hline 3 & \$ 400 & \$ 950 \
\hline 4 & \$ 350 & \$ 1,300 \
\hline 5 & \$ 300 & \$ 1,700 \
\hline
\end{array}$$ In Table 24.1,using the profit maximization rule,a monopolist will charge a price of
A)$500.
B)$400.
C)$350.
D)$300.

Question

Table 24.1 Monopoly Costs and Revenue
$$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 1 & \$ 500 & \$ 400 \
\hline 2 & \$ 450 & \$ 650 \
\hline 3 & \$ 400 & \$ 950 \
\hline 4 & \$ 350 & \$ 1,300 \
\hline 5 & \$ 300 & \$ 1,700 \
\hline
\end{array}$$ In Table 24.1,using the profit maximization rule,a monopolist will charge a price of
A)$500.
B)$400.
C)$350.
D)$300.

Quizplus · Accepted Answer

The profit maximization rule for a monopolist is to produce at the quantity where marginal revenue (MR) equals marginal cost (MC). To find this, we calculate the marginal revenue and marginal cost for each additional unit produced. The marginal cost (MC) for each additional unit is the change in total cost divided by the change in quantity, and the marginal revenue (MR) is the change in total revenue divided by the change in quantity. Total revenue (TR) is price times quantity. Calculating MR and MC between each quantity:- From 1 to 2: MC = (650 - 400) / (2 - 1) = 250, MR = [(450*2) - (500*1)] / (2 - 1) = 400 - 500 = -100- From 2 to 3: MC = (950 - 650) / (3 - 2) = 300, MR = [(400*3) - (450*2)] / (3 - 2) = 1200 - 900 = 300- From 3 to 4: MC = (1300 - 950) / (4 - 3) = 350, MR = [(350*4) - (400*3)] / (4 - 3) = 1400 - 1200 = 200- From 4 to 5: MC = (1700 - 1300) / (5 - 4) = 400, MR = [(300*5) - (350*4)] / (5 - 4) = 1500 - 1400 = 100The monopolist maximizes profit where MR = MC, which is closest at the quantity of 3 units (MR = 300, MC = 300). At this quantity, the price charged is $400.

Table 241 Monopoly Costs and Revenue In Table 24