occurs at 5 units of output.

A perfectly competitive firm will also find its profit-maximizing level of output where MR = MC. The key difference

with a perfectly competitive firm is that in the case of perfect competition, marginal revenue is equal to price (MR

= P), while for a monopolist, marginal revenue is not equal to the price, because changes in quantity of output

affect the price.

Illustrating Monopoly Profits

It is straightforward to calculate profits of given numbers for total revenue and total cost. However, the size of

monopoly profits can also be illustrated graphically with Figure 9.6, which takes the marginal cost and

marginal revenue curves from the previous exhibit and adds an average cost curve and the monopolist’s

perceived demand curve. Table 9.5 shows the data for these curves.

Quantity

Demand

Marginal Revenue

Marginal Cost

Average Cost

Q

P

MR

MC

AC

1

2

3

4

5

6

7

8

1,200

1,200

1,100

1,000

1,000

800

900

800

700

600

500

600
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