Assume 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) continue to operate in the short run.
C) shut down.
D) all of the above are true.

Question

Quizplus · Accepted Answer

If the price is between the average variable cost and average total cost curves, the firm is covering its variable costs and making a contribution to fixed costs. Therefore, it is better to continue operating in the short run rather than shutting down. However, it is not guaranteed that the firm will earn economic profit as it depends on the strength of market demand and the level of costs.

Assume a Monopolist Charges a Price Corresponding to the Intersection