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A-Level Economics · Monopoly (supernormal profit) diagram question

Which point on the price axis is the monopoly price, Pm?

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The diagram

The answer

Point A. From C read UP to the demand curve AR (point B), then ACROSS: Pm = £7. Price is always read off AR, because AR is what consumers will pay. The routine is: find MR = MC (C), read UP to AR (B), then ACROSS to the axis (A) — £7. The £4 at N is where MR meets MC: a cost, not a price. Reading the price off MC instead of AR is the single most expensive mistake on this diagram.

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This is one of 6 questions on the monopoly (supernormal profit) diagram — every corner lettered, every wrong answer diagnosed.

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