At an equilibrium level of output in a pure monopoly:Multiple ChoiceP = MC and P = minimum ATC.P = MC and P > minimum ATC.P > MC and P > minimum ATC.P > MC and P = minimum ATC.
Question
At an equilibrium level of output in a pure monopoly:Multiple ChoiceP = MC and P = minimum ATC.P = MC and P > minimum ATC.P > MC and P > minimum ATC.P > MC and P = minimum ATC.
Solution
The correct answer is: P > MC and P > minimum ATC.
Here's why:
In a pure monopoly, the monopolist is the only seller in the market and thus has the power to control the price. The monopolist will produce at the level of output where marginal cost (MC) equals marginal revenue (MR) to maximize profits. However, because there is no competition, the monopolist can charge a price (P) that is higher than both the marginal cost and the minimum average total cost (ATC). Therefore, at the equilibrium level of output in a pure monopoly, P > MC and P > minimum ATC.
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