Question

A monopolist faces the following demand curve:

Price	Quantity
$10	5
$9	10
$8	16
$7	23
$6	31
$5	45
$4	52
$3	60

The monopolist has total fixed costs of $40 and a constant marginal cost of $5. What is the profit-maximizing level of output?
Select one:
?a. 31 units
?b. 7 units
?c. 16 units
?d. 23 units

Answer 1

P	Q	TR	MR	FC	VC	TC	Profit
10	5	50		40	25	65	-15
9	10	90	8	40	50	90	0
8	16	128	6.33	40	80	120	8
7	23	161	4.71	40	115	155	6
6	31	186	3.13	40	155	195	-9
5	45	225	2.79	40	225	265	-40
4	52	208	-2.43	40	260	300	-92
3	60	180	-3.50	40	300	340	-160

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
profit is maximum at MR=MC or the closest lower MC

where Q=16 units

Option c