If the average total cost curve is always above the demand curve of a monopolist, what can we conclude?
A) The monopolist will earn an economic profit.
B) Entry will occur, forcing the monopolist to reduce price and expand output.
C) The monopolist will suffer economic losses.
D) The monopolist must be producing inefficiently.

Question

Quizplus · Accepted Answer

If the average total cost curve is always above the demand curve of a monopolist, it means that the price charged by the monopolist is higher than the cost of producing the goods. This implies that the monopolist is earning a higher price than would be possible in a perfectly competitive market, resulting in economic profits. However, if the monopolist is producing inefficiently, it may still have higher costs than its competitors, and therefore could be suffering economic losses even if it is charging a higher price than would be possible in a perfectly competitive market. Therefore, we can conclude that the monopolist may earn economic profits, but it may also suffer economic losses. Option B is incorrect because entry will not occur if the monopolist is able to earn economic profits. Option D is also incorrect, as we cannot infer that the monopolist is producing inefficiently without additional information.

If the Average Total Cost Curve Is Always Above the Demand