Suppose that a monopolist faces a demand curve of and
has a fixed supply of 7 units of output to sell.
a) What is its profit-maximizing price
b) what are its maximal profits?
a) The profit-maximizing price for the monopolist is the price at which the marginal revenue (MR) equals the marginal cost (MC). In this case, the MR curve is the same as the demand curve, so the profit-maximizing price is the price at which the demand curve intersects the MC curve.
b) The maximal profits for the monopolist are the difference between the total revenue (TR) and the total cost (TC). The TR is the area under the demand curve, and the TC is the area under the MC curve. Therefore, the maximal profits are the area between the demand curve and the MC curve.