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

• A. Economic Profit = P \times Q - AVC \times Q
• B. Economic Profit = (MC - MR) \times Q
• C. Economic Profit = (P - ATC) \times Q
• D. Economic Profit = (TR - TC) \div Q

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of economic profit. Economic profit is the difference between total revenue (TR) and total cost (TC), where total cost includes both explicit and implicit costs.
2. Step 2: Recall the formulas for total revenue and total cost. Total revenue is calculated as \(TR = P \times Q\), where \(P\) is price and \(Q\) is quantity. Total cost is \(TC = ATC \times Q\), where \(ATC\) is average total cost.
3. Step 3: Write the economic profit formula using total revenue and total cost: \(Economic\ Profit = TR - TC\).
4. Step 4: Substitute the expressions for \(TR\) and \(TC\) into the economic profit formula: \(Economic\ Profit = (P \times Q) - (ATC \times Q)\).
5. Step 5: Factor out \(Q\) to get the formula \(Economic\ Profit = (P - ATC) \times Q\), which correctly calculates economic profit for a monopoly.