Table 11-1
-At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve.The monopolist
A)is earning a negative economic profit.
B)may or may not be earning a negative economic profit.
C)is earning zero economic profit.
D)is earning a positive economic profit.

Question

Table 11-1 
-At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve.The monopolist
A)is earning a negative economic profit. 
B)may or may not be earning a negative economic profit. 
C)is earning zero economic profit. 
D)is earning a positive economic profit.

Quizplus · Accepted Answer

At the point where the average total cost curve is tangent to the demand curve, the monopolist is producing at the efficient scale and is earning zero economic profit. If the monopolist were earning a positive economic profit, he would continue to produce and sell more output until the average total cost curve increased, which would lead to a lower economic profit. Therefore, the monopolist will continue to produce at the point where his demand and average total cost curves intersect, which is the point of zero economic profit.

Table 11-1 -At His Profit-Maximizing Level of Output, a Monopolist's Average Total