Suppose a monopolist's price is less than average total cost but greater than average variable cost at the output level where marginal revenue equals marginal cost. The firm will:
A) increase its profit by increasing its output level.
B) increase its profit by decreasing its output level.
C) minimize its loss by operating at that output level.
D) maximize its profit by operating at that output level.

Question

Quizplus · Accepted Answer

In this scenario, the firm is covering its variable costs but not its total costs, indicating it is making a loss. However, by continuing to produce at the level where marginal revenue equals marginal cost, the firm minimizes its loss, as producing more or less would increase the loss.

Suppose a Monopolist's Price Is Less Than Average Total Cost