Chapter 61, Problem 4MCQ

To determine

Calculation of monopolist’s profit.

Answer to Problem 4MCQ

(d) 160.

Explanation of Solution

The profit-maximizing level of output is 4 because marginal revenue and marginal cost intersect each other, at this level of output, the price charged by the monopolist is $60.

  $\begin{array}{c}\text{Total}\text{Revenue = Price×Quantity}\\ \text{= \$60×4}\\ \text{= \$240}\end{array}$

The average total cost is 20 because the marginal cost curve and average cost curve are the same.

  $\begin{array}{c}\text{Total}\text{Cost = ATC×Output}\\ \text{= \$20×4}\\ \text{= \$80}\end{array}$

  $\begin{array}{c}\text{Earning Profit = Total Revenue - Total Cost }\\ \text{= \$240 - \$80}\\ \text{= \$160}\end{array}$

Hence, option (d) is correct.

Economics Concept Introduction

Introduction:

Profit is the difference between total revenue and total cost. In the diagram, the green shaded area is the profit. The monopolist market consists of a single seller and a large number of buyers. Seller practice price discrimination policy in the market as there is no competition and a lack of information with the consumers.