PROFlT-MAXIMIZING CONDITIONS

We arc now ready to find the maximum-profit equiIihriun of the monopolist. IT a monopolist faces a given demand curve and wishes to maximize total profit (TP). what should it do? B definition. total profit equals total revenue minus total costs; in symbols. TP= TR- TC= (PX q) – TC To maximize its profits. the firm mus.t find the equilibrium price and quantity that give the largest profit, or the largest difference between TR and TC The major finding is that maximum Profit will occur iohen output is at that level where the firm s marginal revmile is equal to its marginal cost; One way to determine this maximum-profit condition
is by using a table of costs and revenues. such as Table 9-5. To find the profit-maximizing quantity and price, compute total profit in column (5). This column tells us that the monopolist’s best quantity, which is 4 units, requires a price of \$120 per unit.

This produces a total revenue of\$480. and, after subtracting total costs of \$250. we calculate total profit to be \$230. A glance shows that no other price-output combination has as high a level of total profit. 