In: Economics
Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price? (show your work)
Total revenue of the firm = Price x quantity
= $27 x 10 =$270.
Total cost = variable cost + fixed cost = 10 + 12 = 22.
Total cost = 22 x 10 = 220.
profit = 270 -220 (total revenue - total cost)
= $50 is the profit of the firm.