Alright, now let's consider how to find the profit-maximizing quantity for a monopoly as well as how to calculate profit or loss from the graph. Alright, so quick note before we get started, again if you studied monopolistic competition already, this is the same exact page from that chapter, okay? So everything we learn there is exactly the same for monopoly as well, alright? So profit-maximizing quantity will always occur and this is for every market structure, monopoly, monopolistic competition, right? Everything we've got where marginal revenue equals marginal cost. That's going to be our profit-maximizing quantity, okay? And remember, just like we discussed before, profit maximizing could also mean loss minimizing, right? Same thing, okay?
So now if we think about perfect competition, we only had a few curves there, but now we've added this extra curve for marginal revenue, okay? So what I do now since our marginal revenue is going to be different from our demand curve, for our sake to make it simpler, I try to keep the marginal revenue curve and the marginal cost curve red, right? So that we can always pick out that profit-maximizing quantity, but this is something to help us now, right? On the test, when the teacher gives you the exam, you're probably not going to have all these things color-coded for you, and you're going to have to be able to figure it out for yourself, but for now while we're learning it, I think this will make it a little easier. So remember, marginal revenue equals marginal cost. That is always going to be our profit-maximizing quantity. So where is that on our graph? Well, easy enough especially with our color coding, marginal revenue curve, marginal cost curve, they cross right here. Okay, so this is the point where they cross, so we have to go down and find what that quantity is, right? So whatever this quantity is right here, that is our profit-maximizing quantity, right? Wherever that is. So somewhere between 2 and 3 units, that would be where we would maximize, okay?
So once we've found the profit-maximizing quantity, how do we calculate what the profit or loss is going to be? Well, here's our handy dandy formula that we've used before, The price minus the average total cost times quantity, right? So we're doing the same thing. First, we're going to look for the marginal revenue, equaling the marginal cost and that's going to tell us what quantity to produce and then we have to calculate our profit from price and average total cost. So it's going to be a little different here than we did in perfect competition. The steps are a little trickier, so let's go ahead and check that out here on the graph now. Okay?
So we're still going to start the same way by finding our profit-maximizing quantity. Okay? So let's start here on the left graph. Notice how much stuff is going on now, right? There’s curves all over the place. That could get pretty confusing, right? So you just have to know what you're looking for and then you can simplify this a lot, right? So we're looking for the profit-maximizing quantity first and foremost. Marginal revenue equals marginal cost and that's going to be this point right here, right? Our red curves where I have our marginal revenue and marginal cost curves right here, they're crossing right there. Right? So this is the quantity that we want to produce is where those cross, so we go down to our quantity axis and there we go. That's the quantity we want to produce.
Now are we going to make a profit or a loss in this case? Well now we have to take it to price and average total cost, right? So remember that our demand curve, that is our price, that is our average revenue, okay? So the demand curve is our price and our average total cost comes from the average total cost curve, right? So before, our marginal revenue in perfect competition was equal to the price, right? So we didn't have to move again, but here the marginal revenue and the price are different things. So we use the marginal revenue to find this point, but then we're not going to calculate using that marginal revenue point. What we're going to do is we're going to go up to the price at that quantity, up to the price up here. Right? And then also to the average total cost at that quantity as well. So we've got to find our average total cost curve and that’s this yellow one down here, right? So these are the points that matter once we want to calculate profit. We've got to look on the demand curve for the price, we want to look at average total cost for the average total cost, right? So now notice that that black point, we’re not using that to calculate profit. Our profit is calculated up here and down here, right? So this would be our profit right here. Right? This whole area would be profit, okay? So we could calculate that. If we knew the quantity, we would have to have a number for average total cost and price, we could go ahead and calculate that using our formula. So this graph on the left shows a profit. Right? This is a profit in the green area. Let me go ahead and write profit in there. Okay?
Let's go on to the right graph and I'm going to get out of the way here so we can see the whole graph and notice pretty much everything's the same here except that average total cost curve. Look where it went, it went way up there. So you can imagine what's going to happen here, but we start with the same thing, right? We want to find our profit-maximizing point which in this case is going to be our loss minimizing point, okay? So let's go ahead and find that and remember that's always going to be where marginal revenue equals marginal cost. So let's find that on our graph right here where the red curves intersect marginal revenue and marginal cost. So that's going to tell us the quantity we want to produce and that is our profit-maximizing loss minimizing quantity. Right?
