UGM June 2019 Q33
- Option : A
- Explanation : There is no certainty that a monopoly firm will always earn an economic or abnormal profit. Whether a monopoly firm earns an abnormal profit or normal profit or incurs loss depends on
(i) its cost and revenue conditions;
(ii) threat from potential competitors: and
(iii) government policy in respect of monopoly.
If a monopoly firm operates at the level of output where MR = MC, its profit depends on the relative levels of AR and AC. Given the level of output, there are three possibilities.
(i) if AR > AC, there is abnormal profit for the firm.
(ii) if AR = AC, the firm earns only a normal profit, and
(iii) if AR < AC, though only a theoretical possibility, the firm makes losses.
