Final answer:
A monopoly's economic profits are calculated as the difference between the price set by the monopolist and the average cost, multiplied by the number of units sold. Total revenue minus total costs represents the profits, showing the potential for sustained profits in a monopolistic market with barriers to entry. The correct answer is option: b. (price minus average cost) times number of units sold.
Step-by-step explanation:
A monopoly's economic profits can be represented by the formula: (price minus average cost) times number of units sold. This is because economic profits are calculated by the total revenue, which is price times quantity, minus total costs, which is average cost times quantity. The area representing economic profits on a graph would be the rectangle formed with height equal to the difference between the monopoly price and the average cost, and the width equal to the quantity sold.
To illustrate, when a monopolist decides the price to charge, they set it above the average cost to earn profits. Total revenue is represented by the area of the box where the width is the quantity sold and the height is the price. The profits are then the total revenues minus total costs, indicating the monopoly's ability to sustain positive economic profits if there are barriers to entry protecting the firm from competition.