Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?
A)The monopolist is currently maximizing profits, and its total profits are $375.
B)The monopolist is currently maximizing profits, and its total profits are $300.
C)The monopolist is not currently maximizing profits; it should produce more units and charge a lower price to maximize profits.
D)The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits.

Question

Quizplus · Accepted Answer

To maximize profits, a monopolist should produce at the point where marginal cost equals marginal revenue (MC=MR). In this case, the marginal cost of producing 75 units is $6 per unit, while the marginal revenue is $5 per unit. This means that the firm is producing more than it should at that level, and should reduce production. Additionally, the average revenue is less than the price, which means that the monopolist is practicing price discrimination. To increase its profits, the monopolist should produce fewer units and charge a higher price.

Suppose When a Monopolist Produces 75 Units Its Average Revenue