A monopoly's economic profits are represented by
A)[price minus marginal cost] times number of units sold.
B)[price minus average cost] times number of units sold.
C)[marginal revenue minus price] times number of units sold.
D)[marginal cost minus price] times number of units sold.

Question

Quizplus · Accepted Answer

Economic profits for a monopoly are equal to total revenue (price times quantity sold) minus total cost (which includes both fixed and variable costs). Therefore, (price minus average cost) times number of units sold represents the economic profits of a monopoly. This is because average cost includes both fixed and variable costs while marginal cost only includes variable costs, making the calculation of economic profit more accurate with average cost. Choice A is incorrect because it uses marginal cost instead of average cost. Choice C is incorrect because marginal revenue is not used to calculate economic profits. Choice D is incorrect because it uses marginal cost instead of average cost.

A Monopoly's Economic Profits Are Represented by