The following figure is a supply-demand diagram that characterizes the demand, marginal revenue, and cost curves for a profit-maximizing monopolist.

-Refer to the figure above.Under monopoly,producer surplus is ________.

Question

The following figure is a supply-demand diagram that characterizes the demand, marginal revenue, and cost curves for a profit-maximizing monopolist.
 
-Refer to the figure above.Under monopoly,producer surplus is ________.

Quizplus · Accepted Answer

Producer surplus is the difference between the price a producer receives and the cost of production. In a monopoly, the producer faces a downward-sloping demand curve, and hence the price charged for the product is higher than the marginal cost. Thus, the producer surplus is the area between the marginal cost curve (MC) and the price (P) charged by the monopolist, i.e., area B + C. Therefore, the correct answer is B.

The Following Figure Is a Supply-Demand Diagram That Characterizes the Demand