AP Micro Monopoly Graph Examples: Solved Problems for Economic Profit & Loss

📚 Quick Study Guide

• 🧐 A monopoly is a market structure with a single seller.
• 📈 Monopolies are price makers, not price takers.
• 💰 Economic profit exists when Price (P) > Average Total Cost (ATC).
• 📉 Economic loss occurs when P < ATC.
• 📏 The profit-maximizing quantity is where Marginal Revenue (MR) = Marginal Cost (MC).
• 📊 On a graph: Demand (D) curve is above MR curve. ATC and MC curves intersect at the minimum point of ATC.
• 💡 Remember to shade the area representing economic profit or loss. Profit is (P - ATC) * Q, and loss is (ATC - P) * Q.

Practice Quiz

1. A monopoly firm maximizes profit at the quantity where:

   1. MR > MC
   2. MR < MC
   3. MR = MC
   4. P = MC

2. If a monopoly's price is less than its average total cost (ATC) at the profit-maximizing quantity, the firm is experiencing:

   1. Economic profit
   2. Normal profit
   3. Economic loss
   4. Break-even

3. On a monopoly graph, the demand curve is typically:

   1. Below the marginal revenue curve
   2. Above the marginal revenue curve
   3. The same as the marginal revenue curve
   4. Nonexistent

4. The area representing economic profit on a monopoly graph is calculated as:

   1. (P - ATC) * Q
   2. (ATC - P) * Q
   3. P * Q
   4. ATC * Q

5. What happens to a monopolist's output if its fixed costs increase?

   1. Output increases
   2. Output decreases
   3. Output remains the same
   4. Price decreases

6. Suppose a monopolist is producing at a point where marginal cost exceeds marginal revenue. To increase profits, the firm should:

   1. Increase output
   2. Decrease output
   3. Maintain output
   4. Increase price

7. Which of the following is true about a monopoly's marginal revenue (MR) curve?

   1. It is the same as the demand curve
   2. It lies above the demand curve
   3. It lies below the demand curve
   4. It is perfectly elastic