How+a+Monopolist+Determines+Profit+or+Loss

A monopolist can determine a profit or loss by simply looking at their graph of Price/Quantity. A monopolist locates where MR is equal to MC, this is where Q* is found. Following Q* up to the demand curve then over to the price determines P*. The distance between P* and the ATC curve determines price per unit. Multiplying Q* by the price per unit gives the monopolist a total profit. If the ATC curve is above where the profit-maximizing point is, then the firm is making a loss. Monopolies are not productively efficient because they produce where MC crosses the MR curve instead of where MC crosses the demand curve. Since there is only one firm in the industry, monopolies can participate in price discrimination. They charge a higher price and produce less quantity as a result. In the chart below, the firm will produce where Marginal cost is equal to Marginal revenue. The firm will produce at a quantity of 3 when MR= $4 and MC= $4.
 * How a monopolist determines a profit or loss:**

Monopolists will jack up prices and reduce quantity. As shown in the comic below the price for the picture is very large. Sample Question: Is the firm below making a profit or loss? (answer below)

Answer: Profit

1. http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Profit-Maximization.topicArticleId-9789,articleId-9769.html 2. http://www.economicshelp.org/2007/03/monopoly-graph-pmc.html 3. http://en.wikipedia.org/wiki/Monopoly_profit