Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved
Having determined the profit maximizing price and output
for a monopolist, we need to see if it is actually earning a profit.
The graph to the right shows a profitable monopolist. Since P* x Q* is total revenue and ATC* x Q* is total cost, the difference (shown as the shaded area) is profit.
Another way to see this is to recognize that P* - ATC* is "average profit" (profit averaged over number of units sold)
so (P* - ATC*) x Q* also gives profit.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved