Answer to Question #253656 in Microeconomics for Ryan

Question

Draw a figure with cost (average total cost and marginal cost), demand, and marginal revenue curves for the monopolist

Answer 1

The profit-maximizing output level is depicted in the diagram above.

It's because the marginal revenue equals the marginal cost at this quantity. Furthermore, the monopoly price represents the profit-maximizing price, whilst the shaded region between the monopoly price and the average total cost represents the amount of economic profit. The firm can make a monopolistic profit because the demand curve it faces permits it to charge a price that is higher than the average total cost of this amount.