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

Which area is the monopolist's SUPERNORMAL PROFIT?

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The diagram

The answer

The area A B F E. (Pm − AC) × Qm: £7 − £6 = £1 a unit on 3 units — rectangle ABFE. High barriers to entry are what keep it there. Profit per unit is the price at the top MINUS average cost at the bottom, times the quantity: rectangle ABFE. Draw the box from AR down to AC, never down to MC — and say why it survives: barriers to entry stop rivals competing it away.

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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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