Table 15-10
The monopolist faces the following demand curve:
-Refer to Table 15-10. If the monopolist has total fixed costs of $40 and a constant marginal cost of $5, what is the profit-maximizing level of output?
A)7 units
B)16 units
C)23 units
D)31 units

Question

Table 15-10
The monopolist faces the following demand curve: 
-Refer to Table 15-10. If the monopolist has total fixed costs of $40 and a constant marginal cost of $5, what is the profit-maximizing level of output?
A)7 units 
B)16 units 
C)23 units 
D)31 units

Quizplus · Accepted Answer

To determine the profit-maximizing level of output, the monopolist should produce where marginal revenue (MR) equals marginal cost (MC). From the table, we can see that MR is equal to price when output is less than or equal to 16. When output is greater than 16, MR is less than price. Therefore, the monopolist should produce 16 units to maximize profits. At an output of 16, MR = $81 and MC = $5, leading to a profit of ($81 - $5) * 16 - $40 = $1,216. This is the highest profit that can be earned given the demand curve and cost structure.

Table 15-10 The Monopolist Faces the Following Demand Curve