<p>If a firm could only reach negative profit in the long-run, they would be wise to quit the market. This is also true for monopolies. If you accept that firms are rational, if a monopoly cannot attain non-negative profits it will quit the market.</p>
<p>Your idea about the fixed cost being very large is the intuition behind so called &quot;<a href="https://en.wikipedia.org/wiki/Natural_monopoly" rel="nofollow noreferrer">natural monopolies</a>&quot;, where the a competitive (price-taking) market structure would not be able to support even a single firm, but a monopolistic one could.</p>

CC BY-SA 4.0
2022-07-01T14:16:29.890Z
Thank you. Yes, I am talking about natural monopolies. What about P=AC? Can it be the case?
festakonik
CC BY-SA 4.0
2022-07-01T14:06:51.417Z
2022-07-01T14:06:51.417Z
Giskard
<p>If you're looking for some hypothetical situation in which the monopolist earns <span class="math-container">$0$</span> profits. You can consider the demand function <span class="math-container">$p = 10 - q$</span>. Also suppose cost function is <span class="math-container">$c(q) = 25$</span>, i.e., there is only fixed cost and no variable cost. In this situation, monopoly equilibrium price and quantity pair is <span class="math-container">$(p^m, q^m) = (5,5)$</span> and profits are <span class="math-container">$0$</span>.</p>
<p>As Giskard has already mentioned in his answer that it is not possible for the monopolist to earn negative profits in the long run (unless the goal of the monopolist is not to maximise profits), but it is possible that the monopolist earns negative profits in the short run. In the above example, if you consider a fixed cost higher than <span class="math-container">$25$</span>, then the firm will be earning negative profits.</p>

CC BY-SA 4.0
2022-07-01T14:50:23.137Z
2022-07-01T14:50:23.137Z
Amit
<p>I would like to know why price is greater than average total cost under monopoly. In textbooks, average cost is drawn under monopoly price. However, if the fixed cost is so large, can monopoly get negative profit?</p>

<price><monopoly><profit-maximization>
Is P > AC under monopoly?
festakonik
# Is P > AC under monopoly?

(Asked by: username_0 on 2022-07-01)

I would like to know why price is greater than average total cost under monopoly. In textbooks, average cost is drawn under monopoly price. However, if the fixed cost is so large, can monopoly get negative profit?

**Tags:** price, monopoly, profit-maximization


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## 2 answers

### Answer by username_1 on 2022-07-01. Score: 1 | Accepted answer

If a firm could only reach negative profit in the long-run, they would be wise to quit the market. This is also true for monopolies. If you accept that firms are rational, if a monopoly cannot attain non-negative profits it will quit the market.

Your idea about the fixed cost being very large is the intuition behind so called "[natural monopolies](https://en.wikipedia.org/wiki/Natural_monopoly)", where the a competitive (price-taking) market structure would not be able to support even a single firm, but a monopolistic one could.

> **Comments:**
> **username_0**: Thank you. Yes, I am talking about natural monopolies. What about P=AC? Can it be the case?  

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### Answer by username_2 on 2022-07-01. Score: 3

If you're looking for some hypothetical situation in which the monopolist earns $0$ profits. You can consider the demand function $p = 10 - q$. Also suppose cost function is $c(q) = 25$, i.e., there is only fixed cost and no variable cost. In this situation, monopoly equilibrium price and quantity pair is $(p^m, q^m) = (5,5)$ and profits are $0$.

As username_1 has already mentioned in his answer that it is not possible for the monopolist to earn negative profits in the long run (unless the goal of the monopolist is not to maximise profits), but it is possible that the monopolist earns negative profits in the short run. In the above example, if you consider a fixed cost higher than $25$, then the firm will be earning negative profits.


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