Final answer:
A monopolist maximizing consumer surplus would produce where the market demand curve meets the ATC curve above AVC to cover fixed costs and avoid losses. This would result in a larger quantity than profit-maximizing but less than a perfectly competitive output, boosting consumer surplus.
Step-by-step explanation:
To understand how a monopolist would maximize consumer surplus while ensuring no losses are incurred, it is essential to know the decision-making of a profit-maximizing monopoly. A profit-maximizing monopolist produces quantity at the point where marginal revenue (MR) is equal to marginal cost (MC), which is identifiable graphically where MR and MC intersect. However, to maximize consumer surplus and avoid losses, the monopolist must consider its fixed costs and select a quantity where price is equal to or higher than average total cost (ATC) to avoid losses and where price is lower than what it would be if the monopoly were maximizing profit, creating more consumer surplus.
If the monopolist has fixed costs, the condition for no losses is that price (P) must cover average total cost (ATC), where P ≥ ATC. To maximize consumer surplus while avoiding losses, the monopolist would need to produce where the market demand curve intersects the ATC curve at a point higher than the AVC curve, ensuring sufficient revenue to cover all costs. This quantity would be greater than the profit-maximizing output but less than the output in a perfectly competitive market. This situation is different than perfect price discrimination, where the monopolist charges each consumer their maximum willingness to pay, resulting in no consumer surplus.