A monopoly is producing 1000 units of output at a price of £20. At that level of output, marginal cost is £5 and average cost is £8. The monopoly ﬁrm is earning proﬁt equal to _____.
A) £20 000
B) £15 000
C) £7000
D) £12 000

Question

Quizplus · Accepted Answer

The profit earned by the monopoly can be calculated by subtracting the total cost from the total revenue. Total revenue is price times quantity (1000 units * £20 = £20,000). Total cost is average cost times quantity (1000 units * £8 = £8,000). Therefore, profit = total revenue - total cost = £20,000 - £8,000 = £12,000.

A Monopoly Is Producing 1000 Units of Output at a Price