Suppose when a monopolist produces 300 units. Its selling price is $11 per unit, its marginal...

Suppose when a monopolist produces 300 units. Its selling price is $11 per unit, its marginal revenue is $8 per unit, its marginal cost is $9 per unit, and its average total cost is $6 per unit. What can we conclude about this monopolist?

A. It is not maximizing profit; it should produce more units

B. It is not maximizing profit; it should produce fewer units

C. It is maximizing profit; its current profit is $600

D. It is maximizing profit; its current profit is $900

E. It is maximizing profit; its current profit is $1,500

F. It is maximizing profit; its current profit is $3,300

Solutions

Expert Solution

Since the monopoly profit maximizing condition

MR=MC

But in the current situation,

Monopoly

Output=300 units

MR=8

MC=9

ATC=6

Price=11

Profit=(P-ATC)Q

=(11-6)300

=5*300

=1500

Since at current level of output, MR is less than MC, so firm is not maximizing output.

So firm should decrease output, for maximizing profit.

Hence option B is the correct answer.

Rahul Sunny answered 1 year ago

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