Question

Given the following information, what quantity is profit - maximizing for a Monopolist? Choose the best answer, assuming that the quantity must be a whole number.

Quantity Marginal Revenue Marginal Cost

1 $162 $105
2 $142 $90
3 $122 $80
4 $102 $90
5 $82 $100
6 $62 $110
7 $42 $120

Answer 1

The profit-maximizing quantity for a monopolist is where marginal revenue equals marginal cost, which for the provided dataset is at the quantity of 3 units.

Step-by-step explanation:

To determine the profit-maximizing quantity for a monopolist, we compare marginal revenue (MR) with marginal cost (MC) for each unit of output. The profit-maximizing rule for a monopolist is to produce at the quantity where MR equals MC.

Upon reviewing the provided information, we see that, initially, MR exceeds MC, indicating that producing more would increase profit. As we reach the quantity of 3, MR at $122 equals the MC at $80, which adds more to revenue than to cost. Going beyond that quantity, MR starts to fall below MC, indicating that producing more would reduce profit. Therefore, the profit-maximizing quantity for the monopolist is 3 units.

In the proposed scenario where a monopolist is seeking to maximize profits, not revenue, and taking into account that the monopolist is protected by barriers to entry which sustains profits over time, the application of this MR=MC rule leads to the maximization of profits. The monopolist will then decide the price to charge for this quantity by moving up from this quantity to the demand curve to find the profit-maximizing price, as highlighted in the several figures provided in the reference material.