Figure 16-5

The following graph depicts the market situation for a monopoly pastry shop called Bearclaws.

Refer to Figure 16-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

Question

Figure 16-5

The following graph depicts the market situation for a monopoly pastry shop called Bearclaws.

​

Refer to Figure 16-5.  Based upon the information shown, how many units will Bearclaws produce to maximize profits?

BlackTom AI · Accepted Answer

To determine the profit-maximizing output for a monopoly, we focus on where marginal revenue (MR) equals marginal cost (MC) on the firm’s diagram. The guiding principle is that a monopolist maximizes profit by producing the quantity where the additional revenue from one more unit exactly matches the additional cost of that unit, i.e., MR = MC.

Option availability: In this case, the provided data shows an answer of 70, but the list of answer choices is missing. Without the options, we cannot compare alternatives or rule out other quantities that might also satisfy MR = MC or satisfy other constraints. Nevertheless, we can discuss how to assess any given quantity on the graph.

What to inspect on the graph to confirm Q* = 70 (if MR = MC at 70):
- Locate the MR curve and the MC curve on the Bearclaws graph. The profit-maximizing output is the Q at which these two curves intersect, provided that the corresponding price covers average variable costs (P ≥ AVC) to ensure the firm covers its variable costs in the short run.
- If the graph shows MR and MC intersecting at Q = 70, then 70 units would be the candidate for profit maximization, assuming the intersection point also satisfies P > AVC so the firm does not shut down.
- Check the price at Q = 70 by tracing up to the demand curve. The price determines total revenue, and combined with MC at that quantity, you can evaluate profit (Profit = Total Revenue − Total Cost). If the price is above AVC at Q = 70, the firm produces; if price is below AVC, the firm would shut down and produce zero.

Why an alternative quantity could be wrong: 
- If MR ≠ MC at another quantity, producing there would yield an additional unit where marginal revenue does not cover marginal cost, reducing profit. 
- If you compare two candidate quantities where MR = MC (e.g., due to a kinks or discontinuities in the MR or MC curves), you would need to check which yields higher profit after considering total revenue and total cost, not just equality of MR and MC.
- If the price at a proposed Q is less than or equal to AVC, the firm would incur losses by producing, so that candidate quantity would be rejected on the shutdown criterion.

In summary, the correct quantity is the one where MR equals MC and the price covers variable costs. If the graph indicates that this intersection occurs at Q = 70, and the associated price at that quantity exceeds AVC, then 70 would be the profit-maximizing output under those graph conditions. Since the list of answer options is missing here, we cannot perform a comparative check against other quantities, but the fundamental criterion remains MR = MC with viability (P > AVC).

ECON 1023 (002) Practice Exam -(FINALS)

Figure 16-5 The following graph depicts the market situation for a monopoly pastry shop called Bearclaws. Refer to Figure 16-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

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A monopolist faces the following demand curve: P=50-0.5Q where Q is the quantity demanded and P is the price. The monopolist's total cost function is given by: TC=50+4Q where TC is the total cost and Q is the quantity produced. What is the profit maximizing quantity?

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ECON 1023 (002) Practice Exam -(FINALS)

Figure 16-5 The following graph depicts the market situation for a monopoly pastry shop called Bearclaws. ​ ​ ​ Refer to Figure 16-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

View Explanation

Log in for full answers

Similar Questions

Use the model above to answer the following question. The profit maximizing quantity for the monopoly is?

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

Figure 16-4Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

A monopolist faces the following demand curve: P=50-0.5Q where Q is the quantity demanded and P is the price. The monopolist's total cost function is given by: TC=50+4Q where TC is the total cost and Q is the quantity produced. What is the profit maximizing quantity?

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Figure 16-5 The following graph depicts the market situation for a monopoly pastry shop called Bearclaws. Refer to Figure 16-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?