Asked by Steven McCoy on Jul 11, 2024
Verified
Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit.The monopolist will produce and sell the fifth unit if its marginal cost is:
A) $1 or less.
B) $.75 or less.
C) $1.75 or less.
D) $2 or less.
Marginal Cost
The increase in total production cost that arises from producing one additional unit of a product or service.
Pure Monopolist
A market situation where a single company or entity exclusively offers a particular product or service, with no close substitutes.
Incremental Sales
Additional sales generated by a company beyond its current sales volume, often as a result of specific marketing actions or promotions.
- Identify the spectrum of output where a monopolist can achieve peak profit, with an emphasis on marginal cost and the elasticity of demand.
Verified Answer
JD
Jessica De RosasJul 16, 2024
Final Answer :
B
Explanation :
The monopolist will produce the fifth unit if its marginal revenue from selling that unit is at least equal to its marginal cost. Marginal revenue is the change in total revenue from selling one additional unit, which for a monopolist is also the market price. So, the marginal revenue from the fifth unit is $1.75. If the marginal cost of producing the fifth unit is less than or equal to $0.75, then the monopolist will produce and sell it since the additional revenue ($1.75) will exceed the additional cost ($0.75), resulting in a net increase in profit. Therefore, choice B is the best choice.
Learning Objectives
- Identify the spectrum of output where a monopolist can achieve peak profit, with an emphasis on marginal cost and the elasticity of demand.