Question

At equilibrium, the pure monopoly will generate_____. rev:A. an economic profit of $4.50 B. an economic profit of $6.50 C. an economic profit of $10 D. a loss of $7.25

Answer 1

Answer:

B. an economic profit of $6.50

Explanation:

Note: The full question is attached

Price     Q     TR        MR     Output    TC      MC

2.75       3     8.25       -             3         4            -

2.50       4     10         1.75         4         4.5       0.5

2.25       5     11.25     1.25         5         4.75    0.25

2            6      12         0.75        6         5.75       1

1.75        7      12.25   0.25        7         7.75       2

For profit Max MR = MC. MC>MR

At Q = 5, MR = 1.25 & MC = 0.25

Economic profit = TR - TC = 11.25 - 4.75 = $6.5

But at Q = 6, MR = 0.75 MC = 1. Net benefit is negative