those profits.

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9.2 • How a Profit-Maximizing Monopoly Chooses Output and Price 229

FIGURE 9.7 How a Profit-Maximizing Monopoly Decides Price In Step 1, the monopoly chooses the profit-
maximizing level of output Q1, by choosing the quantity where MR = MC. In Step 2, the monopoly decides how much
to charge for output level Q1 by drawing a line straight up from Q1 to point R on its perceived demand curve. Thus,
the monopoly will charge a price (P1). In Step 3, the monopoly identifies its profit. Total revenue will be Q1 multiplied
by P1. Total cost will be Q1 multiplied by the average cost of producing Q1, which point S shows on the average cost
curve to be P2. Profits will be the total revenue rectangle minus the total cost rectangle, which the shaded zone in
the figure shows.

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