In the generic diagram for a monopoly, the firm's total profits are determined by
A)any price times the quantity at which the demand curve intersects the average total cost curve.
B)any quantity times the price at which the demand curve intersects the average total cost curve.
C)the price times quantity at which the demand curve intersects the marginal cost curve.
D)the vertical difference between the marginal revenue curve and the marginal cost curve at the quantity at which the demand curve intersects the average total cost curve, times that quantity.
E)the vertical difference between the demand curve and the average total cost curve at the quantity at which the marginal revenue curve intersects the marginal cost curve, times that quantity.

Question

Quizplus · Accepted Answer

In a monopoly, total profits are maximized where the marginal revenue (MR) equals marginal cost (MC), not where demand intersects average total cost (ATC). The profit per unit is the difference between the price (from the demand curve) and the ATC at this quantity. Multiplying this profit per unit by the quantity (where MR=MC) gives total profits, which is what option E describes.

In the Generic Diagram for a Monopoly, the Firm's Total