Question

A pure monopolist __________. a. will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output. b. will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output. c. will realize an economic loss if MC intersects the downsloping portion of MR.

Answer 1

Answer:

A) will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

Explanation:

Economic profit is not the same as accounting profit. Accounting profit is maximized when the monopolist sells its products at the profit-maximizing/loss-minimizing level of output which is the point where marginal revenue = marginal cost.

On the other hand, economic profit occurs when a company earns profits that exceed both its accounting costs and opportunity costs. The opportunity costs of a business refer to the additional costs or lost revenue resulting form choosing one activity or investment over another alternative. In this case, when the monopolist makes economic profit, it means that it is making more money than it would do by engaging in any other type of activity or business.

Answer 2

Answer:

a. will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

Explanation:

The monopolist's profit-maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit-maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equals marginal cost is used to determine the profit-maximizing level of output of every firm, regardless of the market structure in which the firm is operating.