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That is mr mc. Thus the monopoly can tell from the marginal revenue and marginal cost that of the choices given in the table the profit maximizing level of output is 4.

Monopoly Special Cases Of Monopoly Profit Maximization Problem

The supply curve is the same thing as the marginal cost curve for the firm.

Profit maximizing price and quantity monopoly. Thus the profit maximizing quantity is 2 000 units and the price is 40 per unit. A monopolist faces a downward sloping demand curve which means that he must reduce its price in order to sell more units. To maximize its profit the firm must sell one unit of the product for 20.

So the equilibrium price and quantity is q 2 and p 2 2 3 for the consumer. A monopoly s profits are represented by π p q q c q where revenue pq and cost c. If the monopoly produces a lower quantity then mr mc at those levels of output and the firm can make higher profits by expanding output.

Profit producer surplus is the area below the equilibrium price and above the supply curve. The profit maximizing quantity and price are the same whether you maximize the difference between total revenue and total cost or set marginal revenue equal to marginal cost. For a profit maximizing monopoly that charges the same price to all consumers what is the relationship between price p marginal revenue mr and marginal cost mc.

So if a firm is free to set whatever price or quantity they want which level will maximize profits. This quantity must be plugged back into the demand function to find the price for one product. If the monopoly produces a lower quantity then mr mc at those levels of output and the firm can make higher profits by expanding output.

That is mr mc. However expanding output from 4 to 5 would involve a marginal revenue of 400 and a marginal cost of 700 so that fifth unit would actually reduce profits. The first order condition for maximizing profits in a monopoly is 0 q p q qp q c q where q the profit maximizing quantity.

The profit maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost. The goal of a firm is to maximize profits. P mr and mr mc if a monopoly s fixed cost increase its price will and it s profit will.

The economic profit for the monopoly is the difference between price charged and average total cost 2 2 3 2 2 3 multiplied by quantity 2 which ends up being 4 3. Monopolies have the ability to limit output thus charging a higher price than would be possible in competitive markets. The profit maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost.

Monopoly price and output a monopoly can maximize its profit by producing at an output level at which its marginal revenue is equal to its marginal cost.