Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is
A) $1 or less.
B) $.75 or less.
C) $1.75 or less.
D) $2 or less.

Question

Quizplus · Accepted Answer

The monopolist will produce and sell the fifth unit if its marginal revenue is greater than or equal to its marginal cost. From the given information, we know that the monopolist can sell 4 units at $2 and 5 units at $1.75. Therefore, the marginal revenue of selling the fifth unit is:
($1.75 x 5) - ($2 x 4) = $0.75
Thus, the monopolist will produce and sell the fifth unit only if its marginal cost is equal to or less than $0.75. Therefore, the correct answer is B) $0.75 or less.

Suppose That a Pure Monopolist Can Sell 4 Units of Output