Refer to Table 15-1. What is the maximum profit that the monopolist can earn?

• A. The lowest possible average total cost.
• B. The quantity where price equals marginal cost.
• C. The difference between total revenue and total cost at the quantity where marginal revenue equals marginal cost.
• D. The highest possible total revenue regardless of costs.

Answer: (C)

Verified step by step guidance

1. Understand that a monopolist maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This is the fundamental profit-maximizing rule for any firm with market power.
2. Identify the quantity (Q*) at which MR = MC from the data provided in Table 15-1. This quantity is the profit-maximizing output level.
3. Calculate total revenue (TR) at Q* by multiplying the price (P) at that quantity by the quantity itself: \(TR = P \times Q^*\).
4. Calculate total cost (TC) at Q* by using the average total cost (ATC) at that quantity: \(TC = ATC \times Q^*\).
5. Find the maximum profit by subtracting total cost from total revenue at Q*: \(\text{Profit} = TR - TC\). This difference represents the monopolist's maximum profit.