You want to determine the profit-maximizing production quantity for a monopolist. You can ask the firm's consultant to draw the firm's revenue and cost curves, but each curve would cost you $1,000. From the following list indicate which curves you will request and why? a) Average total cost, b) average fixed cost, c) average variable cost, d) marginal cost, e) demand, and f) marginal revenue.
Pie
D Marginal Cost
To determine the profit-maximizing production quantity for a monopolist, we need to consider the firm's revenue and cost curves. From the list of curves, the ones you would request to make an informed decision are:
d) Marginal cost (MC): This curve shows the additional cost incurred when producing an additional unit of output. It is essential to understand the production cost at each level of output and compare it to the additional revenue generated.
e) Demand: This curve shows the relationship between the price of a product and the quantity of that product demanded by consumers. It provides insights into the market's response to changes in price and allows us to determine the optimal quantity to produce.
f) Marginal revenue (MR): This curve represents the additional revenue gained from selling one more unit of a product. To maximize profits, a monopolist should produce at a level where marginal revenue equals marginal cost. Hence, understanding the marginal revenue curve is crucial.
Optional choices:
a) Average total cost (ATC): This curve shows the total cost per unit of output. Although it provides insights into the cost structure, it is not necessary to determine the profit-maximizing quantity.
b) Average fixed cost (AFC): This curve represents the fixed cost per unit of output. Since fixed costs do not change with the level of production in the short run, it is not directly relevant for determining the profit-maximizing quantity.
c) Average variable cost (AVC): This curve shows the variable cost per unit of output. While it can provide information about the cost structure, it is not crucial for determining the profit-maximizing quantity.
In summary, for determining the profit-maximizing production quantity for a monopolist, you would request the marginal cost curve (MC), the demand curve, and the marginal revenue curve (MR).