Exhibit 8-2 Demand and cost information for a monopoly $$\begin{array} { | c | c | c | }
\hline \mathbf { Q } & \mathbf { P } & \mathbf { T C } \
\hline 0 & 40 & 10 \
1 & 30 & 15 \
2 & 20 & 25 \
3 & 10 & 40 \
4 & 0 & 60 \
\hline
\end{array}$$ Refer to Exhibit 8-2. Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profit by choosing price equal to:
A) $40.
B) $20.
C) $10.
D) $0.

Question

Exhibit 8-2 Demand and cost information for a monopoly $$\begin{array} { | c | c | c | } 
\hline \mathbf { Q } & \mathbf { P } & \mathbf { T C } \
\hline 0 & 40 & 10 \
1 & 30 & 15 \
2 & 20 & 25 \
3 & 10 & 40 \
4 & 0 & 60 \
\hline
\end{array}$$ Refer to Exhibit 8-2. Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profit by choosing price equal to:
A) $40.
B) $20.
C) $10.
D) $0.

Quizplus · Accepted Answer

To maximize profits, a monopolist sets output where marginal cost (MC) equals marginal revenue (MR). From the table, calculate MC for each additional unit (change in TC/change in Q). Then, calculate MR (change in total revenue/change in Q), where total revenue is P*Q. Comparing MC and MR, the profit-maximizing quantity is 2 units (from 1 to 2, MC = 10 and MR also decreases by 10 from 30 to 20). At Q=2, P=$20, so the monopolist maximizes profit by setting the price at $20.

Exhibit 8-2 Demand and Cost Information for a Monopoly Refer to Exhibit 8-2