Figure 11-6

-At its optimal output level, the profit-maximizing monopolist in Figure 11-6 will earn a profit equal to
A)zero.
B)(P₂ − P₃)Q.
C)P Q.
D)(P5 − P6 )Q.

Question

Figure 11-6
 
-At its optimal output level, the profit-maximizing monopolist in Figure 11-6 will earn a profit equal to
A)zero. 
B)(P₂ − P₃)Q. 
C)P > Q. 
D)(P5 − P6 )Q.

Quizplus · Accepted Answer

The profit-maximizing monopolist will produce output where marginal revenue (MR) equals marginal cost (MC), which occurs at point E in Figure 11-6. The price charged will be P2, and the quantity produced will be Q. The monopolist's total revenue will be P2Q, and the total cost of production will be the area under the MC curve up to Q, which is shown as the shaded area. The monopolist's profit is equal to total revenue minus total cost, which is (P2 - P3)Q, shown as the rectangle with height (P2 - P3) and width Q in Figure 11-6.

Figure 11-6 -At Its Optimal Output Level, the Profit-Maximizing Monopolist in Figure