## DragIT - Monopoly (1)

The amount of profit that the firm under monopoly makes depends on (a) demand, and hence the position of the AR and MR curves; (b) costs, and hence the position of the AC and MC curves.

In the diagram below, drag the average and marginal cost curves to see the impact that changes in cost will have on the firm's profitability.

1

##### Monopoly equilibrium

If AC is greater than AR where MC=MR, then the monopolist will be making a loss.

 a) True b) False Yes, that's correct. The statement is true. If the monopoly is maximising profits (MC=MR) and the average cost is great than the price (average revenue), then the firm will be making a loss. Try it on the above diagram.No, that's not right. The statement is true. If the monopoly is maximising profits (MC=MR) and the average cost is great than the price (average revenue), then the firm will be making a loss. Try it on the above diagram.Your answer has been saved.

2

##### Monopoly - equilibrium

Where the AC is tangential to the AR curve the monopolist will be making supernormal profit.

 a) True b) False Yes, that's correct. The statement is false. If the AC is tangential to the AR (just touching it), then the monopolist is making just normal profit.No, that's not right. The statement is false. If the AC is tangential to the AR (just touching it), then the monopolist is making just normal profit.Your answer has been saved.