Figure 15-6

-Refer to Figure 15-6.A profit-maximizing monopolist would earn profits of
A) $96.
B) $117.
C) $120.
D) $126.

Question

Figure 15-6
 
-Refer to Figure 15-6.A profit-maximizing monopolist would earn profits of
A) $96. 
B) $117. 
C) $120. 
D) $126.

Quizplus · Accepted Answer

The profit-maximizing output is where marginal revenue (MR) equals marginal cost (MC), which is at a quantity of 6 units. At this quantity, the price is $20, so the total revenue is 6 x $20 = $120. The total cost of producing 6 units is $60, so the monopolist's profit is $120 - $60 = $60. However, in addition to this, the monopolist also earns a profit from charging a price higher than marginal cost. At a quantity of 6 units, the monopolist sets a price of $24, which is $4 higher than the marginal cost of $20. So the monopolist earns an additional profit of $4 x 6 = $24. Thus, the monopolist's total profit is $60 + $24 = $84. However, since the monopolist faces a fixed cost of $24, the actual profit earned is $84 - $24 = $60.

Figure 15-6 -Refer to Figure 15-6.A Profit-Maximizing Monopolist Would Earn Profits of Would