The figure shows the demand and cost curves facing a monopol

The figure shows the demand and cost curves facing a monopoly in the short run. Please find out the

a) optimal output for profit-maximization

b) monopoly price can be charged

c) and the maximum profit.

Thank you in advance

SMC 6 5 ATC AVC 4 3 2 1 MR 0 20 40 60 80 100 120 140 160 8 7 Quantity

Solution

(a) monopolist maximizes profit by equating MR with MC.

From the graph, when MR = MC, quantity= 60

(b) When quantity = 60, Price (reading vertically from demand curve) = $5

(c) When quantity = 60, ATC = $3

Maximum profit = Quantity x (Price - ATC) = 60 x $(5 - 3) = 60 x $2 = $120