A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, MR = $3, and AVC = $2.50. This firm is realizing
A)an economic loss that could be reduced by producing more output.
B)an economic loss that could be reduced by producing less output.
C)an economic profit that could be increased by producing more output.
D)an economic profit that could be increased by producing less output.

Question

Quizplus · Accepted Answer

Since P > ATC, the firm is making an economic profit. To increase profit, it should produce more until MR = MC. Currently, MR < MC, indicating not enough is being produced.

A Pure Monopolist Is Producing an Output Such That ATC