Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?
A)The monopolist is currently maximizing profits, and its total profits are $200.
B)The monopolist is currently maximizing profits, and its total profits are $250.
C)The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit.
D)The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.

Question

Quizplus · Accepted Answer

To find the monopolist's profit-maximizing quantity, we can set its marginal revenue equal to its marginal cost:

$4 = MC

Since its marginal cost is also equal to its marginal revenue, the monopolist’s price must be $8.

To find the monopolist's profit, we can use the formula:

Profit = (Price - Average Total Cost) x Quantity

In this case,

Profit = ($8 - $3) x 50 
Profit = $250

Therefore, the monopolist is currently maximizing profits, and its total profits are $250.

Suppose When a Monopolist Produces 50 Units Its Average Revenue