$\begin{array}{lll}
\text { Quantity } &\text {Price } &\text { Total cost }\
\hline1 & \$ 500 & \$ 400 \
2 & 450 & 650 \
3 & 400 & 950 \
4 & 350 & 1,300 \
5 & 300 & 1,700
\end{array}$
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, total cost is
A) $900.
B) $1,200.
C) $650.
D) $950.

Question

Quizplus · Accepted Answer

The profit maximization rule states that firms maximize profit where marginal revenue (MR) equals marginal cost (MC). To find the profit-maximizing level of output, we look for where the cost of producing an additional unit (the difference in total cost) equals the additional revenue from selling that unit (the difference in price). From the table, the cost of producing the third unit is $300 (950 - 650) and the additional revenue from selling the third unit is also $300 (400 - 100). This matches the profit maximization rule, making the total cost at the profit-maximizing level of output $950.

Table 241 Hypothetical Monopoly Costs and Revenue in Table 24

Table 241
Hypothetical Monopoly Costs and Revenue in Table 24