CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Refer to the graph below. Which rectangle represents monopolists' profit?

A. A
B. A + B + C
C. C + D
Explanation: Output is determined where marginal revenue equals marginal cost. Profit is determined by the rectangle created by the relevant price and average cost at that output.

User Contributed Comments 6

User Comment
Cata :) to be cristal clear, you should add some colours for each rectangle!
labsbamb doesn`t understand.SOmeone can explain this?
Nikita If I am following the solution correctly shouldn't the profit be A + B?
adeelj The answer is A, note that the monopolists earns profit by producing at a point where MR=MC and by charging price P on the demand curve. Hence the Monopolist earns an economic profit equal to (P-ATC)*Q, which means rectangle A.
JDM74 Very tricky question.
kocas always calculate firm profit using ATC*Q as total cost (revenue is P*Q as adeelj also said). Marginal profit on the other hand, is (MR-MC)*Q, which is aimed to be zero.
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