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.
Answers
economyst
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.
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.