How much profit is this monopolist earning? You may use this formula when solving the question: Profit = Total Revenue − Total Cost g

$320

Explanation:

The Profit as the question shows is the Total Revenue less the total cost.

Total Revenue.

This will be the amount of goods sold multiplied by the price they are sold at.

The monopolist maximises output where Marginal Revenue equals Marginal Cost which from the graph is 4 units.

The price they sell at is the intersection of this quantity with the demand curve which is at $120.

Total Revenue = Units Sold * Price

= 4 * 120

= $480

Total Cost

The total cost will be the average cost per unit multiplied by the number of units sold. The relevant average cost is the cost associated with the maximised out of 4 units which according to the graph is $40.

= Average cost * number of units

= 40 * 4

= $160

Profit = 480 - 160

= $320

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