Suppose when a monopolist produces 75 units its average reve

Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?

The monopolist is not currently maximizing profits; it should produce more units and charge a lower price to maximize profits

The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits

The monopolist is currently maximizing profits and its total profits are $375

The monopolist is currently maximizing profits and its total profits are $300

Solution

Answer: B) The monopolist is not currently maximising profits; it should produce fewer units and charge a higher price to maximise profits.

A monopolist maximises it\'s profits when it\'s marginal revenue is equal to it\'s marginal cost. We see that in this case MC>MR. Therefore, it should produce fewer goods. This will decrease the marginal cost. Morever, he should increase the price charged. This will increase his marginal revenue. This process will continue until Marginal revenue will equal marginal cost.