CFA Practice Question

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CFA Practice Question

Refer to the graph below. If this firm was allowed to choose the profit-maximizing level of output, it would charge a price of ______.

A. $1
B. $2
C. $3
D. $9
Correct Answer: D

It would set a price corresponding to the output level where MR = MC.

User Contributed Comments 19

User Comment
i020757 should 9 or 3?
kalps answer should be D $9 per unit is that profit max price
jimmymh i don't understand? at MR=MC the price should be at $3 not $9. the correct answer should be C, right?
fuller $9 is the price the firm would charge when mr = mc = $3. The answer is correct.
zglacier Only when the firm is a "price taker", its supply curve will be its MC curve.

So , the answer D is correct.
sarath $3 is the marginal revenue which the profit is maximum ...the corresponding price charged by the company should be $9.
guna Sure MR=MC, but it should meet the Demand hence $9
Nikita Can someone kindly explain the connection between the D curve and the MC curve? The bits and pieces of responses here are not helping .... thanks
pierreE14 monopoly selects the profit maximising LEVEL OF OUTPUT (NOT PRICE) in the same way as competitive firms do: MC = MR here 500 units

Selling 500 units will lead to £9/unit

moreover would you set your selling price bellow your average cost ? the question helped to get the right answer
surob Got it wrong, although the question was easy. I guess graph was a bit confusing. Be careful
jassosahan MR=Mc=$3, Demand=500,Price=$9.Output=profit maximization.TR=4500.P>MR=MC=$3
patra Economic profit is maximised when MC=MR. The price is determined by the demand curve (D), i.e., $9
missmalik The answer is D=$ 9. 9 is the price at which Monopolist will sell the product and will earn profit(P-AC)xQ. If price is lower than ATC, monopolist will not be able to earn the profit. The profit max output for the monopolist firm is where MR intersects MC.So, The profit max output is in this given example is 500 at 9. And profit exuals to (9-4)x500=2500
StanleyMo haha i got cheated! nice question.
wulin Here is the key: the price will always be set ON THE DEMAND CURVE.
qazwsxedcrfvtgb Firms maximise profit by calculating q at MC=MR, and calculating price based on the demand curve.

More intuitively, if consumers willing to purchase q quantity for $9, then there is no point to sell for $3.
bundy Demand set the price....maximizign profit is the Q where MR = MC ... 500 at a P of $9
fzhou First choose output level, this is determined where MR = MC --> 500 units.

Price should be on demand curve. The price relative to quantity = 500 is $9.
khalifa92 they intentionally draw an invisible demand curve
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