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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

A monopoly firm is currently earning positive economic profit, and the owner decides to sell it. He asks for a price that takes into account the economic profit. Explain and diagrammatically show what a price that takes into account economic profit does to the average total cost (ATC) curve of the firm.

To determine

The economic profit of monopoly.

Explanation

In this situation, the first owner of the firm tries to convert economic profit into cost. As a result, there is an increase in the average total cost up to the price level, which would reduce the economic profit of the new owner.

Figure 1 shows the monopoly firm before and after sale. In this figure, the quantity is measured on the horizontal axis, and the price is measured on the vertical axis...

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