Question

A monopolist is maximizing profit at an output rate of 1,000 units per month. At this output rate, the price that its customers are willing and able to pay is $8 per unit, average total cost is $5 per unit, and marginal cost is $6 per unit. It may be concluded that at this monthly output rate, marginal revenue isA) $5 per unit, and the monopolist earns zero economic profits.B) $6 per unit, and the monopolist earns economic profits of $3,000 per month.C) $5 per unit, and the monopolist earns economic profits of $2,000 per month.D) $6 per unit, and the monopolist earns economic losses of $1,000 per month.

Answer 1

Answer:

B) $6 per unit, and the monopolist earns economic profits of $3,000 per month

Explanation:

The monopolistic market maximize their profit at the point on which marginal cost = marginal revenue.

If this is the maximizing profit point, and marginal cost is 6, then marginal revenue will be $6

The profit will be the difference between total revenue and total cost:

consumers pay up to 8 per units and the output is 1,000 units

8 x 1,000 = 8,000 total revenue

Then, average cost is $5 so we multiply this by the unit output to calculate the total cost.

5 x 1,000 = 5,000 total cost

last step, revenue - total cost

8,000  - 5,000 = 3,000