A monopoly is producing 1000 units of output at a price of £20. At that level of output, marginal cost is £5 and average cost is £8. The monopoly firm is earning profit equal to _____.

£20 000
£7000
£12 000Correct
£15 000

Explanation
Since price is the same as average revenue, the average revenue of the firm is £20, while the average cost is £8. Hence, the profit per unit for the firm is (20 – 8) = £12. Therefore, the profit earned by the firm is £12 × 1000 units = £12 000.