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**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.

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**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. |