CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Refer to the graph below. Assuming that the monopoly maximizes profit, it will earn profits of ______.

A. $8,000 per day
B. $40,000 per day
C. $160,000 per day
Explanation: Total profits equal per unit profits ($200) multiplied by output (200), or $40,000.

User Contributed Comments 7

User Comment
jgraham6 can someone help me w/ this??
StanleyMo hello jgraham, the profit is equal price set - ATC area. where you get 200 x (600-400).
Candy220 A monopoly's economic profit is maximized when MR = MC (when the 2 curves intersect). So the profit maximizing output = 200 and the price = $600. The economic profit is the box where price is greater than AC. So, your profit per output = $600 - $400 = $200 and your profit maximizing ouput = 200, so the economic profit = $200 * 200 = $40,000. You can refer to your Economic book (volume 2) pgs 185 - 188 for a better explanation
davcer graham, question is asking about profit, not revenue, so thus 40,000 is the answer
bwils39 What does the "D" line represent?
deleseleuc D is the demand line
bnapoleo You can also do this by P*Q Where P=Q Demanded, then do P*Q where P=MC.

So 600*200=120,000 (TR)
and 400*200=80,000(TC)
Profit=Revenue-Cost = 120,000-80,000=40,000
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