The DeBeers Company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will:
A) be equal to the marginal cost of diamonds.
B) be equal to the average total cost of diamonds.
C) exceed the marginal cost of diamonds but be equal to the average total cost of diamonds.
D) exceed both the marginal cost and the average total cost of diamonds.

Question

Quizplus · Accepted Answer

In a monopoly, the price is set above both marginal cost and average total cost to maximize profits, leading to positive economic profits.

The DeBeers Company Is a Profit-Maximizing Monopolist That Exercises Monopoly