Chapter 16, Problem 1SPPA

To determine

To show:

The profit maximizing price, output and economic profit on a graph representing demand curve and MR curve.

Explanation of Solution

Given information:

Price	Quantity	TR	MR
10	0	0	-
8	2000	16000	8
6	4000	24000	4
4	6000	24000	0
2	8000	16000	-4
0	10000	0	8

The graph represnting the demand and marginal revenue curve is as shown below:

According to the diagram, the AR represents the demand curve while the marginal revenue curve is represented by the green line. Since the marginal cost is zero, the MC curve overlaps over the horizontal axis (blue color). Marginal revenue curve intersects the marginal cost curve at output level 6000 units (profit maximizing level) and at this point, the profit-maximizing price is 4 dollars. However, the area marked by the yellow color represents the economic profit.

Economics Concept Introduction

Monopoly Market:

Monopoly market is that market structure where a single firm enjoys the largest market share. The firm sells that commodity which has no close substitute and the entry for new firms in the monopoly market is very difficult.