Refer to Figure 15-6. Suppose the monopoly's marginal cost curve intersects the marginal revenue curve at a quantity of 40 units, and the demand curve at this quantity indicates a price of \$60. What is the monopoly price and quantity?

• A. Price = \$40, Quantity = 60 units
• B. Price = \$60, Quantity = 40 units
• C. Price = \$40, Quantity = 40 units
• D. Price = \$60, Quantity = 60 units

Answer: (B)

Verified step by step guidance

1. Understand that a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This is the fundamental rule for profit maximization in monopoly.
2. Identify the quantity where the MC curve intersects the MR curve. According to the problem, this occurs at 40 units. This quantity is the profit-maximizing output level for the monopolist.
3. Once the profit-maximizing quantity is found, determine the price the monopolist will charge by looking at the demand curve at that quantity. The demand curve shows the highest price consumers are willing to pay for that quantity.
4. At the quantity of 40 units, the demand curve indicates a price of \$60. This price is what the monopolist will set, as it is the maximum price consumers are willing to pay for that quantity.
5. Therefore, the monopoly price and quantity are the price from the demand curve at the MR=MC quantity, which is Price = \$60 and Quantity = 40 units.