Figure 15-5

-Refer to Figure 15-5.If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should
A)continue to produce because the price is greater than average variable cost.
B)shut down because the price is greater than marginal cost.
C)shut down because the price is less than average total cost.
D)continue to produce because a monopolist always earns a profit.

Question

Figure 15-5
 
-Refer to Figure 15-5.If the monopolist charges price P* for output Q*, in order to maximize profit or minimize loss in the short run, it should
A)continue to produce because the price is greater than average variable cost. 
B)shut down because the price is greater than marginal cost. 
C)shut down because the price is less than average total cost. 
D)continue to produce because a monopolist always earns a profit.

Quizplus · Accepted Answer

In order to maximize profit or minimize loss in the short run, the monopolist should continue to produce because the price P* is greater than the average variable cost (AVC). The average variable cost is the minimum amount the firm must receive to cover all variable costs and shut down in the short run. Since the firm can cover its variable costs and still make a contribution to fixed costs and profit, it should continue to produce in the short run.

Figure 15-5 -Refer to Figure 15-5.If the Monopolist Charges Price P* for Charges