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 is earning economic losses.
C)the firm is earning economic profits.
D)the firm should increase its output.
E)the firm should decrease its output.

Question

Quizplus · Accepted Answer

If a monopolist's average-total-cost curve lies above its demand curve at the profit-maximizing level of output, it means that the price it is able to charge is lower than its average total cost. This implies that the firm is incurring losses in the long run. Therefore, the correct choice is B - the firm is earning economic losses.

If at the Profit-Maximizing Level of Output,a Monopolist's Average-Total-Cost Curve