What is the monopolist’s profit under the following conditions? The profit-maximising price charged for goods produced is $40. The intersection of the marginal-revenue and marginal cost-curves occurs where output is 20 units and marginal cost is $25. Average cost for 20 units of output is $15.

Question

BlackTom AI · Accepted Answer

We begin by identifying the key data provided: the profit-maximising price is $40 and output is 20 units, with marginal cost at that output level given as $25. Additionally, the average cost for 20 units is $15.

First, compute total revenue (TR): multiply price by quantity. TR = $40 × 20 = $800.

Next, compute total cost (TC) using average cost at the given output level. TC = average cost × quantity = $15 × 20 = $300.

Profit is total revenue minus total cost: Profit = TR − TC = $800 − $300 = $500.

Now evaluate each answer choice:
- Option a ($500): This matches the profit calculated from TR and TC, given the price, quantity, and average cost. It is consistent with the data that MR = MC at Q = 20, and the observed unit economics.
- Option b ($40): This is the price charged per unit, not the total profit. It reflects revenue per unit rather than overall profitability, so it does not represent profit.
- Option c ($200): This figure could be misconstrued as profit per unit or a miscalculation of total profit, but profit per unit would be TR per unit minus TC per unit; with the given numbers, total profit is $500, not $200.
- Option d ($300): This number aligns with total cost (TC) at 20 units, but profit equals TR minus TC, not TC alone; hence this is not the profit.

Putting it together, the profit computed from the given price, quantity, and average cost data yields $500, while the other options either reflect price, cost, or incorrect profit calculations.

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