Suppose that the only maker of a particular type of horse hair clothing exits the industry because demand is too low.The correct analysis of this situation is that
A)the producer's decision is irrational, since monopolies are not limited by the demand curve
B)the producer's decision is irrational, since monopolies never go out of business
C)the producer's decision is irrational, since it could simply raise the price
D)the price received by the producer was lower than the marginal cost in the long run
E)the price received by the producer was lower than the average total cost in the long run

Question

Quizplus · Accepted Answer

In the long run, if a monopoly exits the market, it is likely because the price it receives is lower than its average total cost, meaning it cannot cover its costs and make a profit.

Suppose That the Only Maker of a Particular Type of Horse