The profit-maximizing output is where price is
rules for profit maximization require and (AVC
not shown in the graph, but it must be below ATC.) With average costs
given by the ATC curve, unit costs at are given by c and the
monopolist makes positive profits shown by the shaded rectangle.
The firm depicted in Figure 10-2 is earning positive profits. But you can
easily imagine other possibilities. If the firm’s ATC curve was higher
(perhaps because of higher fixed costs), the firm with the same level of
output and charging the same price could be breaking even (zero profits)
or even making negative profits (losses). (You can create your own
diagrams like Figure 10-2 and draw in the appropriate ATC curves to
illustrate these two possibilities.)
Nothing guarantees that a monopolist will make positive profits in the short run, but if it
suffers persistent losses, it will eventually go out of business.Q∗, MR=MC; p∗.
MR=MC p>AVC.
Q∗