A monopolist is currently maximizing profits. In addition, if P ATC MC, then the monopolist
A) just breaks even.
B) earns positive economic profits.
C) is covering total variable costs but not total fixed costs.
D) is covering total fixed costs but not total variable costs.

Question

A monopolist is currently maximizing profits. In addition, if P > ATC > MC, then the monopolist
A) just breaks even.
B) earns positive economic profits.
C) is covering total variable costs but not total fixed costs.
D) is covering total fixed costs but not total variable costs.

Quizplus · Accepted Answer

When P (price) is greater than ATC (average total cost), it means the monopolist is selling its product at a price higher than the average cost of producing it, which leads to positive economic profits. The fact that ATC is greater than MC (marginal cost) does not affect the conclusion about profitability.

A Monopolist Is Currently Maximizing Profits