Consider the adhering to table through cost and revenue data for a hypothetical monopolist:
|Quantity||TFC||TVC||TC||AVC||ATC||MC||Price||Total Revenue||Marginal Revenue|
Problem: What are the profit-maximizing output and price because that the over monopolist? What is the profit at this output? What is the typical profit in ~ this output?
Solution: like the purely competitive firm, a monopolist maximizes profits at the quantity where marginal cost and marginal revenue space equal, or wherein marginal price comes closest to marginal revenue, as lengthy as marginal expense does not exceed marginal revenue, marginal cost is no falling, and price exceeds average variable cost.
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Applying the profit-maximizing rule, us conclude the the certain maximizes earnings at
|Quantity||= 600 units|
|Profit (TR-TC)||= $19,200-$15,000 = $4,200|
|Average benefit (TP / Q)||= $7 ($4,200 / 600)|
Video ExplanationFor a video clip explanation of a monopoly firm’s benefit maximization making use of a table, you re welcome watch:
Monopoly Profit-Maximization by analyzing a GraphIn a table, we find the profit-maximizing calculation by identifying the point at i m sorry marginal cost and also marginal revenue are equal, as lengthy as marginal expense does not exceed marginal revenue, marginal price is not falling, and also price exceeds median variable cost.
The graph below indicates that at calculation Qpm, marginal cost equals marginal revenue in the increase sloping part of the marginal cost curve. At this output, the price is Ppm. For a monopolist, the marginal revenue curve and the need (price) curve space different. Therefore, marginal revenue and also price at the profit-maximizing output are different. Native the MC=MR point, go right up to the need curve in stimulate to recognize the profit-maximizing price. This price is better than the firm’s mean variable cost, so the agency will not have to shut down.
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The price is also greater 보다 the firm’s average complete cost, so the agency is make an financial (above-normal) profit. Due to the fact that there are obstacles to entry into this industry, it is feasible that the for sure can continue to make financial profits in the long run, together well.
For a video clip explanation of a monopolist’s profit-maximizing quantity and also price making use of a graph, please watch: