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.

Question

Quizplus · Accepted Answer

The monopolist is incurring losses in the short run, but if it continues to operate in the long run, it will not be able to cover its fixed costs. In the long run, it will be better for the firm to shut down and avoid further losses.

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