Table 15-16
A monopolist faces the following demand curve:
-Refer to Table 15-16. The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's average total cost is
A)$9.00.
B)$7.50.
C)$6.74.
D)$5.82.

Question

Table 15-16
A monopolist faces the following demand curve: 
-Refer to Table 15-16. The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's average total cost is
A)$9.00. 
B)$7.50. 
C)$6.74. 
D)$5.82.

Quizplus · Accepted Answer

To find the profit-maximizing level of output, we need to set marginal cost equal to marginal revenue (which is also equal to the price for a monopolist). From the demand curve, we know that price is $25 at an output of 6 units. Therefore, the monopolist will produce 6 units of output.
The average total cost at an output of 6 units can be found by dividing the total cost (which is the sum of fixed cost and variable cost) by 6. Variable cost is the product of marginal cost and the quantity produced, which is $5 x 6 = $30. Adding fixed cost of $40 gives a total cost of $70.
ATC = Total cost / Quantity = $70 / 6 = $11.67. Therefore, the answer is not listed, but the closest option is B, which is $7.50.

Table 15-16 A Monopolist Faces the Following Demand Curve