Use Figure 8.1, which represents the situation faced by a monopolist, to answer the following questions.

-The firm depicted in Figure 8.1 is:
A)earning a positive economic profit.
B)incurring an economic loss and should shut down.
C)incurring an economic loss but it should continue to operate in the short run so long as price exceeds average variable costs.
D)earning a zero economic profit.

Question

Use Figure 8.1, which represents the situation faced by a monopolist, to answer the following questions.

-The firm depicted in Figure 8.1 is:
A)earning a positive economic profit. 
B)incurring an economic loss and should shut down. 
C)incurring an economic loss but it should continue to operate in the short run so long as price exceeds average variable costs. 
D)earning a zero economic profit.

Quizplus · Accepted Answer

The firm is earning a positive economic profit because price is greater than average total cost.