A monopolist faces the following demand curve:

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

A monopolist faces the following demand curve:

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 find the profit-maximizing level of output, the monopolist should produce where marginal revenue (MR) equals marginal cost (MC).

First, we need to calculate the monopolist's marginal revenue:
MR = ∆TR/∆Q
MR = [(220 - 2Q) - (220 - 2(Q-1))] / 1 
MR = 2

Next, we need to set MR equal to MC and solve for Q:
2 = 5
Q = 16

Therefore, the profit-maximizing level of output is 16 units.

A Monopolist Faces the Following Demand Curve