Multiple Choice
The deadweight loss created by the monopoly is:
12. Monopoly
Monopoly Efficiency and Deadweight Loss
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If the monopolist's fixed cost is $25, the monopoly's total economic profit when maximizing profit is:
A
$0
B
$20
C
$45
D
The monopoly is incurring a loss
Verified step by step guidance1
Identify the profit-maximizing quantity where Marginal Cost (MC) equals Marginal Revenue (MR). From the graph, this occurs at the intersection of the MC and MR curves.
Determine the price at which this quantity is sold by finding the corresponding point on the demand curve (D) for the profit-maximizing quantity.
Calculate Total Revenue (TR) by multiplying the price from the demand curve by the profit-maximizing quantity.
Calculate Total Cost (TC) by adding the fixed cost to the variable cost, which is the product of the profit-maximizing quantity and the price at the MC curve.
Determine the economic profit by subtracting Total Cost from Total Revenue. Compare this value to the given options to identify the correct answer.
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