This Graph Shows the Cost and Revenue Curves Faced by a Monopoly

question 72

Multiple Choice

This graph shows the cost and revenue curves faced by a monopoly. According to the graph shown,if Q2 units are being produced,this monopolist:

• A) is not maximizing profits.
• B) is producing where marginal costs are less than marginal revenue.
• C) is earning negative profits.
• D) should increase production.

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Definitions:

Contribution Margin

The amount of revenue remaining after subtracting the variable costs associated with producing goods, contributing to covering fixed costs and profit.

Service Firms

Companies that primarily provide intangible products or services to customers, such as consultancy, education, financial services, and healthcare.

Inventory

The total amount of goods and materials held by a company intended for sale or used in production.

Service Firms

Businesses that provide intangible products or services to consumers as opposed to tangible goods.