A MONOPOLIST MAY ENJOY ABNORMAL PROFIT ONLY IF ITS

• A. marginal cost exceeds marginal revenue
• B. demand curve is perfectly elastic
• C. expenditure on advertisement increases
• D. price exceeds average total cost ✓

The answer to the question is: D. price exceeds average total cost

In a monopoly market structure, there is only one seller or producer of a product with no close substitutes, giving the monopolist significant control over the market price. The monopolist can set the price higher than the average total cost of production, allowing it to earn economic profits in the long run.

When the price charged by the monopolist exceeds the average total cost of production, it means that each unit sold contributes positively to covering both variable and fixed costs, resulting in a surplus that adds to the monopolist’s profit margin. This situation is known as abnormal profit or economic profit, which is above normal returns that a competitive firm would earn in the long run.

If a monopolist were to operate at a price below its average total cost, it would incur losses and eventually exit the market unless it can adjust its pricing strategy or reduce costs to become profitable. Therefore, for a monopolist to sustain abnormal profits, it needs to ensure that its price level remains higher than its average total cost of production.

In summary, a monopolist can enjoy abnormal profit when its price exceeds average total cost, allowing it to cover all costs and generate surplus revenue that contributes to its economic profit.