Suppose a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:
A) earn an economic profit.
B) stay in operation in the short-run, but shut down in the long run if demand remains the same.
C) shut down.
D) none of these.

Question

Quizplus · Accepted Answer

The firm covers its variable costs and some fixed costs, so it will continue operating in the short run but will shut down in the long run if it cannot cover total costs.

Suppose a Monopolist Charges a Price Corresponding to the Intersection