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

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BlackTom AI · Accepted Answer

The question asks: Which condition represents a break-even point for a monopolist firm?

First, note that the provided data for answer options is missing in this prompt, so we cannot enumerate all possible choices to compare. Nevertheless, we can reason about the core concept of a break-even point for any firm, including a monopoly.

In microeconomics, a break-even point occurs when the firm earns zero economic profit, meaning total revenue equals total costs. For a purely competitive firm or a monopolist, this translates to price (P) being equal to average total cost (ATC) at the chosen output level: P = ATC. When P exceeds ATC, the firm earns positive economic profit; when P is below ATC, the firm incurs a loss.

To connect this to the monopoly setting: the monopolist determines output where marginal revenue (MR) equals marginal cost (MC) to maximize profit, and the price is then read off the demand curve at that quantity. If the resulting price happens to equal ATC, economic profit is zero, which is exactly the break-even condition. If price is above ATC, positive profit; if below ATC, losses.

Why other potential statements would be incorrect depends on their content, but common misconceptions include: 
- Believing break-even occurs only where P = MC; that describes profit maximization condition (MR = MC) in monopoly, not break-even. 
- Thinking break-even is about minimizing costs, which is not the same as balancing revenues and costs. 
- Claiming break-even requires P > ATC or P < ATC exclusively without referencing the equality condition, which would misstate the zero-profit scenario.

In summary, the statement that captures the break-even condition is the one in which price equals average total cost (P = ATC). This precisely marks zero economic profit for the monopolist at the chosen output level, aligning with the definition of break-even in profit accounting.

MCD2020 - T1 - 2025 Lecture Quiz 8 - Monopoly

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

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