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Monopoly Profit on the Graph quiz #1

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  • Refer to Figure 15-4. Which area on the graph represents the monopolist's profit?
    The area between the price (from the demand curve) and the average total cost (from the ATC curve) at the profit-maximizing quantity, multiplied by the quantity produced, represents the monopolist's profit.
  • Refer to Table 15-1. At what price will the monopolist maximize profit?
    The monopolist will maximize profit at the price found on the demand curve corresponding to the quantity where marginal revenue equals marginal cost.
  • Which of the following equations calculates economic profit for a monopoly?
    Economic profit for a monopoly is calculated as (Price - Average Total Cost) × Quantity.
  • What is the monopolist's profit at the profit-maximizing level of output?
    The monopolist's profit is the difference between price (from the demand curve) and average total cost (from the ATC curve) at the profit-maximizing quantity, multiplied by that quantity.
  • Refer to Figure 15-7. What profits would a profit-maximizing monopolist earn?
    A profit-maximizing monopolist would earn profits equal to (Price - Average Total Cost) × Quantity, where price is determined from the demand curve at the profit-maximizing quantity.
  • Why is the marginal revenue curve separate from the demand curve in a monopoly graph?
    In a monopoly, the marginal revenue curve is separate from the demand curve because the monopolist must lower the price to sell additional units, causing marginal revenue to fall below price.
  • What does the intersection of the marginal revenue and marginal cost curves indicate for a monopolist?
    The intersection of the marginal revenue and marginal cost curves indicates the profit-maximizing (or loss-minimizing) quantity that the monopolist should produce.
  • How do you determine the price a monopolist will charge at the profit-maximizing quantity?
    To determine the price, find the profit-maximizing quantity and then locate the corresponding price on the demand curve at that quantity.
  • What graphical area represents a loss for a monopolist?
    A loss is represented by the area where the average total cost at the profit-maximizing quantity exceeds the price from the demand curve, multiplied by the quantity produced.
  • How does the process of finding profit or loss in a monopoly differ from perfect competition?
    In a monopoly, marginal revenue and price are different, so you use marginal revenue to find quantity, but price is taken from the demand curve, whereas in perfect competition, marginal revenue equals price.