Figure 9-1

-Refer to Figure 9-1. What area indicates total cost when the monopolist is maximizing profits?
A) 0BGQ2
B) 0AEQ1
C) DAEF
D) 0DFQ1

Question

Figure 9-1
 
-Refer to Figure 9-1. What area indicates total cost when the monopolist is maximizing profits?
A) 0BGQ2 
B) 0AEQ1 
C) DAEF 
D) 0DFQ1

Quizplus · Accepted Answer

When the monopolist is maximizing profits, it produces the output where marginal revenue (MR) equals marginal cost (MC). In the graph, this occurs at point Q where the marginal cost curve intersects with the marginal revenue curve. From Q, draw a vertical line upward to intersect with the demand curve at point D. Then draw a horizontal line to intersect with the y-axis at point F. This rectangle, DFAE, represents the total revenue earned by the monopolist. The area of rectangle DAFQ1 represents the monopoly's total variable cost. Finally, the area of rectangle DFQ2G represents the monopoly's total profit. Therefore, the answer is D, 0DFQ1.

Figure 9-1 -Refer to Figure 9-1. What Area Indicates Total Cost When