Multiple Choice
The economic profit can be found by multiplying the difference between P and ATC by quantity. It can also be found by:
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12. Monopoly
Monopoly Profit on the Graph
Multiple Choice
Refer to Table 15-1. What is the maximum profit that the monopolist can earn?
A
The lowest possible average total cost.
B
The quantity where price equals marginal cost.
C
The difference between total revenue and total cost at the quantity where marginal revenue equals marginal cost.
D
The highest possible total revenue regardless of costs.
Verified step by step guidance1
Understand that a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This is the fundamental profit-maximizing rule for any firm with market power.
Identify the quantity (Q*) at which MR = MC from the data provided in Table 15-1. This quantity is the profit-maximizing output level.
Calculate total revenue (TR) at Q* by multiplying the price (P) at that quantity by the quantity itself: \(TR = P \times Q^*\).
Calculate total cost (TC) at Q* by using the average total cost (ATC) at that quantity: \(TC = ATC \times Q^*\).
Find the maximum profit by subtracting total cost from total revenue at Q*: \(\text{Profit} = TR - TC\). This difference represents the monopolist's maximum profit.
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