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**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.

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**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 |