Use the following to answer question:
Figure: Computing Monopoly Profit
-(Figure: Computing Monopoly Profit) Use Figure: Computing Monopoly Profit.The profit-maximizing price is _____ and will generate total economic profit of _____.

Question

Use the following to answer question:
Figure: Computing Monopoly Profit

-(Figure: Computing Monopoly Profit) Use Figure: Computing Monopoly Profit.The profit-maximizing price is _____ and will generate total economic profit of _____.

Quizplus · Accepted Answer

The profit-maximizing price is where MR=MC, which occurs at point U1 in the graph. From there, draw a vertical line to the demand curve to find the profit-maximizing quantity, which is Q1. The profit-maximizing price is then found by drawing a horizontal line from Q1 to the monopoly's marginal revenue curve, which intersects at point S1. The total economic profit is the area of the rectangle P₂ minus the total cost, which is represented by the rectangle P₃. Therefore, the answer is C, which shows the profit-maximizing price at P₃ and the total economic profit as the rectangle P₂P₃EF.

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