A monopolist may enjoy abnormal profit only if its

Step 1: Analyze the question The question asks about the condition under which a monopolist earns abnormal (supernormal) profit.

Step 2: Explain the concept Abnormal profit (also called supernormal or economic profit) is the profit earned above normal profit. It exists when:

• Total Revenue (TR) > Total Cost (TC)
• Dividing both sides by quantity gives: Average Revenue (AR = Price) > Average Total Cost (ATC)

A monopolist maximizes profit where MC = MR. At that output, it charges the price on the demand (AR) curve. If this price is higher than the ATC at that output, the firm earns abnormal profit.

Step 3: Check each option

• A. Marginal cost exceeds marginal revenue: Incorrect. If MC > MR, the firm is producing too much and profit is falling. Profit is maximized where MC = MR.
• B. Demand curve is perfectly elastic: Incorrect. A perfectly elastic demand curve is a feature of perfect competition, not monopoly. A monopolist faces a downward-sloping demand curve.
• C. Expenditure on advertisement increases: Incorrect. Higher advertising spending raises costs and does not by itself guarantee abnormal profit.
• D. Price exceeds average total cost: Correct. Profit per unit = Price − ATC. When this is positive, the monopolist earns abnormal profit.

Step 4: Answer The correct option is D. price exceeds average total cost.

Tip: Remember the rule "P > ATC = abnormal profit; P = ATC = normal profit; P < ATC = loss." This works for any market structure, so you can use it in many WASSCE, NECO and JAMB questions. Also, if you see "perfectly elastic demand," think perfect competition, not monopoly.