Question

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

Answer 1

A monopolist in the given scenario is earning a profit of $2350 by selling 5 units at a price of $800 per unit and incurring a total cost of $1650. This is characteristic of a monopolistic market with high barriers to entry.

Step-by-step explanation:

The profit a monopolist earns can be calculated by subtracting total cost from total revenue. In the scenario provided, a monopolist has chosen a profit-maximizing price of $800 for their product, selling a quantity of 5 units, which results in total revenue of 5 x $800 = $4000. The total cost for producing these units is 5 x $330 = $1650. Therefore, the profit can be determined by calculating $4000 (total revenue) - $1650 (total cost), which equals a profit of $2350.

This illustration also emphasizes the nature of monopolistic markets where a firm is able to earn profits year after year without facing competition due to barriers to entry. This contrasts with a perfectly competitive market where profits are eroded in the long run by new entrants.

Answer 2

Answer: $320

Step-by-step 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