Homework SourseA monopoly is producing a level of output such that marginal
A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $10 per unit and is incurring average variable costs of $5 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm:
| is operating at maximum total profit |
Solution
Firm is producing opimal level as MR = MC.
Les x be units sold. Hence total revenue = P*Q = 10 x.
total cost = 8x.
thus profit = 10x - 8x = 2x.
Hence firm is incurring profit. And as i is running where MR = MC, profit earning is maximum.
Option 1 is correct.
