For a monopoly firm, if AVC

Question

For a monopoly firm, if AVC < P < ATC, then the profit-maximizing firm should
A) increase production.
B) produce at the point at which MC = MR.
C) reduce production.
D) shut down.

Quizplus · Accepted Answer

In the short run, a monopoly firm maximizes profit by producing at the point where marginal cost (MC) equals marginal revenue (MR), regardless of whether it is making an economic profit or loss, as long as the price (P) covers the average variable cost (AVC). This ensures that the firm is covering its variable costs and contributing to fixed costs, even if it's not covering the full average total cost (ATC).

For a Monopoly Firm, If AVC < P < ATC