Suppose a monopolist's demand curve lies below its average variable cost curve.The firm will:
A)stay in operation in the short run.
B)increase the price.
C)earn an economic profit in the long run.
D)shut down.
E)increase production.

Question

Quizplus · Accepted Answer

If the demand curve lies below the average variable cost curve, the firm is not able to cover its variable costs in the short run. Hence, it will shut down and incur losses equal to its fixed costs. In the long run, it may exit the market altogether if it cannot earn economic profits.

Suppose a Monopolist's Demand Curve Lies Below Its Average Variable