$\begin{array}{lll}
\text { Quantity } &\text {Price } &\text { Total cost }\
\hline1 & \$ 500 & \$ 400 \
2 & 450 & 650 \
3 & 400 & 950 \
4 & 350 & 1,300 \
5 & 300 & 1,700
\end{array}$
Table 24.1
Hypothetical Monopoly Costs and Revenue In Table 24.1, according to the profit maximization rule, at the profit-maximizing level of output marginal, cost is
A) $200.
B) $250.
C) $300.
D) $350.

Question

Quizplus · Accepted Answer

Marginal cost (MC) is the cost of producing one more unit of a good. To find the MC for each level of output, we calculate the change in total cost (TC) divided by the change in quantity (Q). From the table:- From 1 to 2 units, TC increases from $400 to $650, so MC = ($650 - $400) / (2 - 1) = $250.- From 2 to 3 units, TC increases from $650 to $950, so MC = ($950 - $650) / (3 - 2) = $300.- From 3 to 4 units, TC increases from $950 to $1300, so MC = ($1300 - $950) / (4 - 3) = $350.- From 4 to 5 units, TC increases from $1300 to $1700, so MC = ($1700 - $1300) / (5 - 4) = $400.The profit-maximizing level of output is where marginal cost equals marginal revenue (MR). Since the price decreases as quantity increases, indicating a downward-sloping demand curve typical for a monopolist, the profit-maximizing quantity is where the MC of producing an additional unit is just about to exceed the price. Given the choices, the closest MC to a price provided in the table before it exceeds the price is $300 (from 2 to 3 units), which matches the price of $400 for the third unit. Therefore, the correct answer is C) $300, as it represents the MC at the profit-maximizing level of output just before the MC exceeds the price.

Table 241 Hypothetical Monopoly Costs and Revenue in Table 24

Table 241
Hypothetical Monopoly Costs and Revenue in Table 24