At the level of output where the marginal cost and marginal revenue curves intersect, a monopolist's demand curve passes above its average total cost curve. The firm will:
A) be able to make a pure economic profit.
B) stay in operation in the short-run, but shut down.
C) shut down in the short-run.
D) increase its price.

Question

Quizplus · Accepted Answer

At the level of output where the marginal cost and marginal revenue curves intersect, the monopolist is producing the profit-maximizing quantity. This means that the marginal revenue earned from selling an additional unit of output is equal to the marginal cost of producing that unit. Since the demand curve passes above the average total cost curve at this level of output, the price that the monopolist can charge is higher than its average total cost. This means that the firm is able to make a pure economic profit. Therefore, the best choice is A.

At the Level of Output Where the Marginal Cost and Marginal