At an output of 1,000 units,a monopoly firm's average revenue is $40,its marginal revenue is $30,its marginal cost is $30,its average variable cost is $35,and fixed costs are $5,000.Given this information,we can conclude that the monopolist:
A)is earning zero economic profit.
B)is earning an economic profit equal to $5,000.
C)is making an economic loss and should shut down.
D)should increase output to maximize profit.

Question

Quizplus · Accepted Answer

At an output of 1,000 units, the total revenue (TR) is $40,000 (since average revenue, which is also the price, is $40). The total cost (TC) is composed of total variable cost (TVC) and total fixed cost (TFC). TVC can be calculated as average variable cost (AVC) times quantity, which is $35,000 ($35 * 1,000), and TFC is given as $5,000. Thus, TC = TVC + TFC = $35,000 + $5,000 = $40,000. Since TR = TC, the firm is earning zero economic profit.

At an Output of 1,000 Units,a Monopoly Firm's Average Revenue