Simple Econ Question

At an output quantity equal to 250, a monopoly firm faces a demand curve with a price § of $50, a marginal cost (MC) and marginal revenue (MR) equal to $10, and an average total cost (ATC) equal to $12. The economic profit for this monopoly firm is closest to: A) $9,500. B) $12,500. C) $10,000. D) $12,000

A ?

Yep! Economic profit = Total revenue – total cost, where total revenue = PQ and total cost = ATC × Q. So, Economic profit = $9,500 = ($50)(250) – ($12)(250).

MR=MC, the economic equilibrium is under the ATC curve. I thought it suppose to be economic loss. AM I missing something here, or the above statement is only applicable to perfect competition. Enlightenment pls.

Check out Book 2, page 173 Picture of Perfect competition; I think I am correct in saying every firm, no matter the competition, sets quantity output at MR=MC. In perfect competition MR = Demand curve = Price, so the MR=MC equilibrium also determines price. If this equilibrium point is below ATC then yes it is economic loss (as you will see on page 173). Now flick over to page 193, you see what happens in Monopoly. Output is determined by MC=MR, however, price is not. Price is set as per the Demand curve (which is of course downward sloping unlike for the perfect competition firm). Even if ATC is greater than the MC=MR point, so long as it remains below Demand curve its profit. Hope I haven’t said anything wrong here

If it was a perfectly competitive firm then MR=MC=Price of product, but in a Monopoly the price is always set higher than MR and MC