Which condition represents a break-even point for a monopolist firm?

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BlackTom AI · Accepted Answer

Let's explore each option to see how it relates to the concept of a break-even point for a monopolist.
Option a: 'MR equals ATC'. In general, break-even occurs when profit is zero, which happens when price covers all costs on average. While MR = ATC could relate to a specific cost/price condition in rare cases, it is not the standard condition for zero profit for a monopolist. The monopolist’s revenue condition is driven by marginal revenue relative to marginal cost for profit maximization, not MR equals ATC as the break-even criterion.
Option b: 'Price equals MC'. This is a condition tied to profit maximization under perfectly competitive markets (where price equals marginal cost and firms earn normal profit in the long run). For a monopoly, price does not necessarily equal MC; monopolists typically set price above MC to maximize profit. Therefore, price = MC is not the break-even condition for a monopolist.
Option c: 'Price equals ATC'. This matches the standard break-even criterion: a monopolist earns zero economic profit when the price it can charge covers average total cost (including both fixed and variable costs). When P = ATC, total revenue equals total cost, yielding zero profit, which defines the break-even point.
Option d: 'MR equals MC'. This is the condition for profit maximization in a monopolistic setting (where the firm chooses output so that marginal revenue equals marginal cost). While this determines the quantity to produce for maximum profit, it does not by itself indicate zero profit or the break-even price. So it describes the output decision, not the break-even profitability condition.
In summary, only the condition where price equals average total cost directly corresponds to zero profit, i.e., the break-even point for a monopolist; the other options describe either profit-maximizing output conditions or market-structure-specific pricing that does not guarantee zero profit.

Which condition represents a break-even point for a monopolist firm?

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Which condition represents a break-even point for a monopolist firm?

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