With the aid of a diagram, explain the super-normal profit of a monopolist.

Super-normal profit of a monopolist is earned when the price charged is greater than the average cost of producing the equilibrium output.

A monopolist is in equilibrium at point E, where marginal cost equals marginal revenue, that is, \(MC=MR\). The equilibrium output is \(OQ\), obtained by dropping a perpendicular from E to the output axis.

At output \(OQ\), the monopolist fixes the price at \(OP\), as shown by point P on the average revenue (demand) curve. The average cost of producing this output is \(OC\), shown by point C on the AC curve.

Since \(OP>OC\), the firm earns super-normal profit per unit equal to:

\[OP-OC=PC\]

Therefore, total super-normal profit is:

\[\text{Super-normal profit}= (OP-OC)\times OQ=PC\times OQ\]

It is represented by the shaded rectangle PCBA. Total revenue is \(OP\times OQ\), while total cost is \(OC\times OQ\). Thus:

\[\text{Profit}=\text{Total Revenue}-\text{Total Cost}=(OP\times OQ)-(OC\times OQ).\]