The following figure shows the marginal revenue (MR), marginal cost (MC), and demand (D) curves for a firm operating as a monopoly.

-Refer to the figure above.If the monopolist sets its price to the optimal price,what would be its profits?

Question

The following figure shows the marginal revenue (MR), marginal cost (MC), and demand (D) curves for a firm operating as a monopoly.
 
-Refer to the figure above.If the monopolist sets its price to the optimal price,what would be its profits?

Quizplus · Accepted Answer

The profit for a monopolist is the area between the price level they set (P₁) and their average cost (P₄) over the quantity sold (Q₁). This is because profit is calculated as (Price - Average Cost) * Quantity, which geometrically corresponds to the area (P₁ P₴) Q₁.

The Following Figure Shows the Marginal Revenue (MR), Marginal Cost