Price 9 8 7 6 5 4 3 2 1 0
Quantity 0 1 2 3 4 5 6 7 8 9
Marginal cost equals 5. Calculate the marginal revenue associated with each quantity level;
What level of output should the monopolist choose? Explain
Marginal revenue is the additional revenue that firm earns from one additional unit of output. Thus Marginal Revenue is given by
In order to maximize profit a monopolist chooses that quantity at which MR = MC and if there is no such quantity at which MR = MC and if there is no quantity at which MR = MC, then it produces till MR > MC where MR = Marginal Revenue and MC = Marginal Cost.
We can see from above that there is no quantity at which MR = MC and last quantity at which MR > MC(=5) is Quantity = 2.
Hence, Monopolist should choose 2 units of output.
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