Use Figure 8.1, which represents the situation faced by a monopolist, to answer

Question

Use Figure 8.1, which represents the situation faced by a monopolist, to answer the following questions. For the firm in Figure 8.1, the profit-maximizing (loss-minimizing) price and level of output are: P_1 and Q_1. P_2 and Q_2. P_3 and Q_1. P_4 and Q_1. The firm depicted in Figure 8.1 is: earning a zero economic profit. incurring an economic loss but it should continue to operate in the short run so long as price exceeds average variable costs earning a positive economic profit. incurring an economic loss and should shut down.

Explanation / Answer

Ans 26) here the profit maximizing condition for the monopoly is achieved by equating MR=MC, so, that happens at Q1 and P1.

so option A

Ans 27) the firm here is earning positive economic profit, which evident by looking at the curves where ATC lies below the demand curve, indicating a positive economic profit.

so option C

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