A monopolist earns an economic profit only when:
A) average total cost equals than price.
B) marginal cost equals price.
C) marginal revenue equals price.
D) average total cost is less than price.

Question

Quizplus · Accepted Answer

A monopolist earns economic profit only when its average total cost (ATC) is less than the price it charges. If ATC is equal to the price, the monopolist earns zero economic profit (only normal profit). If the price is less than ATC, the monopolist incurs losses. Therefore, the monopolist maximizes profits by producing where marginal revenue (MR) equals marginal cost (MC), but only earns economic profits if the price is above ATC.

A Monopolist Earns an Economic Profit Only When