In the context of monopoly, would a monopolist still produce if they are earning zero economic profit?

• A. No, a monopolist only produces if they earn positive accounting profit.
• B. Yes, because zero economic profit means the monopolist is earning normal profit.
• C. Yes, as long as total revenue covers total variable costs, the monopolist will continue to produce in the short run.
• D. No, a monopolist will always shut down if economic profit is zero.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of economic profit, which is total revenue minus total costs, including both explicit and implicit costs. Zero economic profit means the firm is covering all its costs, including opportunity costs, and is earning a normal profit.
2. Step 2: Recall that in the short run, a monopolist will continue to produce as long as total revenue covers total variable costs, even if economic profit is zero. This is because fixed costs are sunk in the short run and do not affect the shutdown decision.
3. Step 3: Recognize that zero economic profit implies the monopolist is earning a normal profit, which is sufficient to keep the firm operating since it is not losing money relative to its next best alternative.
4. Step 4: Understand that if total revenue falls below total variable costs, the monopolist would minimize losses by shutting down production in the short run.
5. Step 5: Conclude that a monopolist will produce with zero economic profit as long as total revenue covers total variable costs, reflecting the normal profit condition and short-run production decision.