A pure monopolist is producing an output such that ATC = $7, P = $9, MC = $6, MR = $5, and AVC = $5.50. This firm is realizing
A)an economic loss that could be reduced by producing more output.
B)an economic loss that could be reduced by producing less output.
C)an economic profit that could be increased by producing less output.
D)an economic profit that could be increased by producing more output.

Question

Quizplus · Accepted Answer

The firm is making an economic profit because the price (P = $9) is greater than the average total cost (ATC = $7). However, since marginal cost (MC = $6) is less than marginal revenue (MR = $5), the firm could increase profit by reducing output until MC equals MR.

A Pure Monopolist Is Producing an Output Such That ATC