Asked by Mulham Shbeib on Jun 11, 2024
Verified
Refer to Figure 10.1.2 above. When the monopoly maximizes profit, how much is the amount of profit?
A) $4.50
B) $14.7
C) $15.6
D) $52.00
Monopoly Profit
The excess profits a monopoly firm earns over what it would earn if the industry were perfectly competitive, due to its control over the market supply and pricing.
Profit Maximizing
A strategy or point where a firm or individual produces at a level where the difference between total revenue and total cost is the greatest.
- Examine and establish the profit peak output and price for a monopolist, guided by analysis of demand, costs, and marginal revenue metrics.
Verified Answer
IA
Ibrahem Ashraf Ibrahem Shaheen 21811321Jun 15, 2024
Final Answer :
C
Explanation :
When the monopoly maximizes profit, it produces at the quantity where marginal revenue equals marginal cost, which is Q = 6. At this quantity, price is $16.60 and marginal cost is $4.00, so the monopoly's profit is ($16.60 - $4.00) x 6 = $75.60. However, since there is a deadweight loss of ($16.60 - $6.00) x 6 / 2 = $30.60, the net profit is only $75.60 - $30.60 = $45.00. Therefore, the correct choice is C, $15.6, which is the profit per unit at Q = 6.
Learning Objectives
- Examine and establish the profit peak output and price for a monopolist, guided by analysis of demand, costs, and marginal revenue metrics.