Which of the following equations calculates economic profits for a monopoly?

• A. Economic Profit = Price - Average Variable Cost
• B. Economic Profit = Total Revenue - Fixed Cost
• C. Economic Profit = Marginal Revenue - Marginal Cost
• D. Economic Profit = Total Revenue - Total Cost

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definition of economic profit. Economic profit is the difference between total revenue and total cost, where total cost includes both explicit and implicit costs.
2. Step 2: Recall the formula for total revenue (TR), which is the price (P) multiplied by the quantity (Q) sold: \(TR = P \times Q\).
3. Step 3: Recognize that total cost (TC) includes all costs incurred in production, both fixed and variable costs, as well as opportunity costs.
4. Step 4: Write the economic profit formula as: \(\text{Economic Profit} = TR - TC\).
5. Step 5: Compare the given options to this formula and identify that the correct equation for economic profit is \(\text{Economic Profit} = \text{Total Revenue} - \text{Total Cost}\).