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At the profit-maximizing level of output, how is a monopolist's profit represented on a graph?
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12. Monopoly
Monopoly Profit on the Graph
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The economic profit can be found by multiplying the difference between P and ATC by quantity. It can also be found by:
A
Dividing profit per unit by quantity
B
Subtracting total cost from total revenue
C
Multiplying the coefficient of demand elasticity by quantity
D
Multiplying the difference between P and MC by quantity
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Understand that economic profit is the difference between total revenue and total cost.
Identify that total revenue (TR) is calculated as price (P) multiplied by quantity (Q).
Recognize that total cost (TC) is calculated as average total cost (ATC) multiplied by quantity (Q).
Realize that economic profit can be expressed as TR - TC, which simplifies to (P - ATC) * Q.
Note that the correct method to find economic profit is subtracting total cost from total revenue, as it directly gives the profit value.
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