In a monopoly, the total costs terms remain the same. The Per Unit Costs scenario changes

A monopoly is a market structure where a single firm is the sole seller of a product with no close substitutes. Because the monopolist controls the entire market, it has price-setting power.

The monopolist determines the profit-maximizing level of output where:

MR = MC

This is the golden rule for profit maximization in all market structures, including monopoly.

After choosing the output level where MR = MC, the monopolist charges the highest price consumers are willing to pay, which lies on the demand curve (AR curve).

🔍 Profit Conditions in a Monopoly

Once the profit-maximizing output is set (MR = MC), the nature of the firm’s profit is determined by comparing AR (Price) to AC at that output level:

1. ✅ If AR > AC → Abnormal (Supernormal) Profit

• Price per unit > Cost per unit

• The firm earns profit above normal.

• Common for monopolies due to lack of competition.

• Graphically: AR curve lies above the AC curve at the chosen output.

2. ⚖️ If AR = AC → Normal Profit

• Price per unit = Cost per unit

• The firm covers all its costs, including opportunity cost of capital.

• It breaks even, earning just enough to stay in business.

• Graphically: AR curve touches the AC curve at the chosen output.

3. ❌ If AR < AC → Loss

• Price per unit < Cost per unit

• The firm incurs a loss.

• A monopolist may still operate in the short run if it covers average variable costs.

• Graphically: AR curve lies below the AC curve at the chosen output.

✅ Final Summary:

✅ Final Answer: A monopoly sets output where MR = MC, and earns abnormal profit if AR > AC, normal profit if AR = AC, and loss if AR < AC.