Figure 15-5
-Refer to Figure 15-5.A profit-maximizing monopoly's profit is equal to
A) P4 x Q3.
B) (P4-P2)x Q3.
C) (P4-P1)x Q3.
D) (P5-P0)x Q1.

Question

Figure 15-5 
-Refer to Figure 15-5.A profit-maximizing monopoly's profit is equal to
A) P4 x Q3. 
B) (P4-P2)x Q3. 
C) (P4-P1)x Q3. 
D) (P5-P0)x Q1.

Quizplus · Accepted Answer

Profit maximization occurs where marginal revenue equals marginal cost (MR=MC). In the given graph, this occurs at Q3 output level. Therefore, the profit-maximizing quantity is Q3. The price that can be charged for this quantity is P4, the point on the demand curve where Q3 intersects. The total profit earned by the monopoly, then, is (P4-P1)x Q3, as this is the rectangle representing the monopoly's total revenue minus total cost (at Q3 output level). Therefore, the correct answer is (C).

Figure 15-5 -Refer to Figure 15-5.A Profit-Maximizing Monopoly's Profit Is Equal to Is