Question

Suppose that the owner of a smartphone monopoly hires you to determine whether his firm has made the profit-maximizing number of smartphones. He provides you with the following production and sales information for the first six months of 2016.
Month Sales MR of last unit MC of last unit

January 2016 10,000 $250 $225

February 2016 10,500 $230 $230

March 2016 11,000 $220 $210

April 2016 10,500 $210 $220

May 2016 12,000 $200 $210

June 2016 11,000 $220 $220

a.In which months should the firm have produced fewer smartphones?
b.In which months should the firm have produced more smartphones?
c.In which months was the firm maximizing profits?

Answer 1

Answer:

A. January 2016

B. May 2016

C. June 2016

Explanation:

Req. A

From the data table above, it is easy to understand that only 10,000 mobile phones were sold in the month of January.

Req. B

From the information above, the highest sales level was in the month of May with a 12,000 smartphones.

Req. C

We know, a monopolist maximizes its profit when marginal revenue equals to the marginal cost. MR = MC.

In that case, two months had equal marginal revenue = marginal cost, i.e., February and June.

According to the maximizing rule, at which point there are a high number of sales and MR = MC, that sales point is considered as maximizing profit.

Therefore, in the month of June, the sales were high with 11,000 smartphones. Hence, June was the firm's maximizing profit.