Question

If a monopoly is producing at an output where its average total cost of production is minimized and equals $50 per unit and marginal revenue equals $60, is the monopoly producing at the profit-maximizing output level? Explain why or why not.

Answer 1

Not profit maximizing.
At the minimum of the AC curve it must be true that MC=AC. So, MC=$50 and MR =$60. The firm could do better by producing more as the marginal revenue from selling one more unit exceeds the marginal cost of producing that extra unit.