Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:
A) earn an economic profit.
B) continue to operate in the short run.
C) shut down.
D) all of these are true.

Question

Quizplus · Accepted Answer

If the price charged is between the average variable cost and average total cost curves, the firm is covering its variable costs and a portion of its fixed costs. Therefore, it is better to continue to operate in the short run, even if it is not earning an economic profit. If the price were below the average variable cost curve, the firm would shut down in the short run.

Assume a Monopolist Charges a Price Corresponding to the Intersection