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A monopolist currently charges $50.00 per unit for the 100,000 units of product it produces and sells each month. An economic analysis has shown that, given the consumer demand curve and price elasticity of demand, Marginal Revenue would equal Marginal Cost when both are $37.50 per unit. The quantity where Marginal Cost is $37.50 per unit is 120,000 units per month. To maximize its profit this firm should:

a. (Increase/Decrease) output.
b. The new level of output should be: ____ units per month.
c. To sell this new number of units the firm will have to (raise/lower) its price.
d. The new price should be (greater than/less than) the Marginal Revenue.
e. The new price will have to be (more than/less than) the old price.

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Solution determines if the monopolist firm is in equilibrium state.

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A monopolist currently charges $50.00 per unit for the 100,000 units of product it produces and sells each month. An economic analysis has shown that, given the consumer demand curve and price elasticity of demand, Marginal Revenue would equal Marginal Cost when both are $37.50 per unit. The quantity where ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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