For a monopoly firm, if AVC = $20, P = $21, and ATC = $22, then the profit-maximizing firm should
A) increase production.
B) produce at the point at which MC = MR.
C) reduce production.
D) shut down.

Question

Quizplus · Accepted Answer

Since the price (P = $21) is above the average variable cost (AVC = $20) but below the average total cost (ATC = $22), the firm should continue producing in the short run to cover its variable costs and contribute to fixed costs. The profit-maximizing condition for any firm, including a monopoly, is to produce where marginal cost (MC) equals marginal revenue (MR).

For a Monopoly Firm, If AVC = $20, P =