If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is
A) $1.75 or less
B) $2.00 or less
C) $0.75 or less
D) $1.00 or less

Question

Quizplus · Accepted Answer

The marginal revenue from selling the fifth unit is $0.75 (since total revenue increases from $8.00 to $8.75). The firm will produce and sell the fifth unit if its marginal cost is $0.75 or less.

If a Firm Holds a Pure Monopoly in the Market