The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of output.Table 11.3

-If at the profit-maximizing level of output, a monopolist's average-total-cost curve lies above its demand curve, then:
A)the firm should shut down in the short run.
B)the firm would earn economic losses.
C)the firm would earn economic profits.
D)the firm should increase its output.
E)the firm should decrease its output.

Question

The table given below shows the prices charged and marginal cost incurred by a monopolist for different units of output.Table 11.3
 
-If at the profit-maximizing level of output, a monopolist's average-total-cost curve lies above its demand curve, then:
A)the firm should shut down in the short run. 
B)the firm would earn economic losses. 
C)the firm would earn economic profits. 
D)the firm should increase its output. 
E)the firm should decrease its output.

Quizplus · Accepted Answer

If the average-total-cost curve lies above the demand curve, it means that the price charged by the monopolist is less than its average-total-cost per unit. Therefore, the monopolist is not covering all its costs and would earn economic losses at the profit-maximizing level of output. As a result, the best choice is B - the firm would earn economic losses.

The Table Given Below Shows the Prices Charged and Marginal