Refer to Figure 15-5. A profit-maximizing monopoly's profit is equal to:

• A. the area between marginal cost and marginal revenue, over the quantity produced
• B. the area between average variable cost and average total cost, over the quantity produced
• C. the area between price and average total cost, over the quantity produced
• D. the area between price and marginal cost, over the quantity produced

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that a profit-maximizing monopoly chooses the quantity where marginal revenue (MR) equals marginal cost (MC). This determines the output level.
2. Step 2: Identify the price the monopoly charges by looking at the demand curve at the chosen quantity. This price is generally above marginal cost due to market power.
3. Step 3: Recognize that total revenue (TR) is price (P) multiplied by quantity (Q), and total cost (TC) is average total cost (ATC) multiplied by quantity (Q).
4. Step 4: Calculate profit as total revenue minus total cost, which can be expressed as the area between the price and average total cost curves, multiplied by the quantity produced: \(\text{Profit} = (P - ATC) \times Q\).
5. Step 5: Conclude that the profit-maximizing monopoly's profit corresponds to the area between the price and average total cost curves over the quantity produced, not the other areas mentioned.