Question

1. A pure monopoly is currently producing 10 units of output. At Q = 10, P...

1. A pure monopoly is currently producing 10 units of output. At Q = 10, P = $14 and MC = $12. At Q = 9, P = $15.

Should it have produced the tenth unit of output ? (1 point)

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Homework Answers

Answer #1

No.

Explanation :

MR =change in total revenue /change in quantity

=(140-135)/(10-9)

=5.

Total revenue =Price*quantity

At quantity 10=14*10

=140.

At quantity 9=15*9

=135.

Here at quantity 10, MR is less than MC. So production of this unit is not profitable.

Firm maximises it's profit where MR equals MC.

Marginal revenue is the extra revenue generated by the firm with selling one more extra unit and marginal cost is the extra cost occurred with the production of one more extra unit. So when extra revenue is less than extra cost, production of one more extra unit is not profitable.

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