Figure 8.2 Figure 8.2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 8.2.If the firm's average total cost curve is ATC₃,the firm will

Question

Figure 8.2 Figure 8.2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 8.2.If the firm's average total cost curve is ATC₃,the firm will

Quizplus · Accepted Answer

In monopolistic competition, the profit-maximizing output level occurs where marginal revenue (MR) equals marginal cost (MC). In the figure above, this occurs at output level Q1 where MR intersects with MC. At that output level, the monopolist charges price P1, which is higher than marginal cost at that output level (MC1). If the average total cost curve is ATC₃, the average cost at output level Q1 will be higher than the price P1, which means the firm will face losses. The distance between the average cost curve and the price at Q1 represents the amount of loss the firm is making. Therefore, the best choice is A) suffer a loss.

Figure 82 Figure 8