A monopolist will earn economic profits when

Question

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A monopolist will earn economic profits when its average total cost (ATC) lies below the demand curve. This is because the monopolist has control over the price it charges, and can set it at a level that allows it to earn a profit. If ATC equals or exceeds the price, the monopolist will earn zero economic profit (but may still earn accounting profit). When AVC is a minimum, it means that the firm is producing at the point where it has minimized its variable costs per unit of output, but this does not necessarily mean it is earning economic profits. Similarly, when ATC equals MC, it means that the firm is producing at the point where its marginal cost (MC) equals its average total cost (ATC), but again, this does not necessarily mean it is earning economic profits.

A Monopolist Will Earn Economic Profits When