Answer the question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist: $PQd$10172533415\begin{array}{ccc}P & & Q_{d} \\\hline\$10 & & 1 \\7&&2\\5 & & 3 \\3 & & 4 \\1 & & 5\end{array}$ Refer to the table.Assume that this monopolist faces zero production costs.The profit-maximizing monopolist will set a price of:

A) $10.
B) $7.
C) $5.
D) $3.

Question

Answer the question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist:

PQd$10172533415\begin{array}{ccc}P & & Q_{d} \\\hline\$10 & & 1 \\7&&2\\5 & & 3 \\3 & & 4 \\1 & & 5\end{array}

Refer to the table.Assume that this monopolist faces zero production costs.The profit-maximizing monopolist will set a price of:

A) $10.
B) $7.
C) $5.
D) $3.

Nishad George · Accepted Answer

Final Answer : C, Explanation :  A monopolist maximizes profit by producing where marginal revenue (MR) equals marginal cost (MC). Since this monopolist faces zero production costs, MR equals the price of the good. The profit-maximizing monopolist will set a price of $5, where the quantity demanded is 3, because at that price, MR=$5=$MC and any higher price will result in lower profits, while any lower price will also result in lower profits. Therefore, the answer is (C) $5.

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