Profit = TR – TC - (1)

Multiplying and dividing (1) by Q

Profit = (TR/Q - TC/Q) x Q

Profit = (P - AC) x Q

The monopolist will receive economic profits as long as price is greater than average total cost

A monopolist firm firm will choose to produce an output where

• MC = MR

• MC curve cuts MR from below.

Here, E is the point of equilibrium. At E ,

1. MC=MR

2. MC cuts MR from below.

- From E, Draw a line perpendicular to X axis till AR curve. This will tell us the price, (price is OA over here.)
- the point of intersection of this perpendicular line and AC curve , ie point D, tells us the average cost.So, the cost is OB over here.
- we know that Profit = (P - AC) x Q
- Profit is rectangle ABCD.

A monopolist firm will earn super normal profits in the short run as well as the long run.

## 1 comment:

Very informative and easy to understand. The best literature i have found so far on economics, thank you so much.

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