Figure 10-5

-Refer to Figure 10-5.If the monopolist charges price P* for output Q*,in order to maximize profit or minimize loss in the short run,it should
A)continue to produce because price is greater than average variable cost.
B)shut down because price is greater than marginal cost.
C)shut down because price is less than average total cost.
D)continue to produce because a monopolist always earns a profit.

Question

Figure 10-5
 
-Refer to Figure 10-5.If the monopolist charges price P* for output Q*,in order to maximize profit or minimize loss in the short run,it should
A)continue to produce because price is greater than average variable cost. 
B)shut down because price is greater than marginal cost. 
C)shut down because price is less than average total cost. 
D)continue to produce because a monopolist always earns a profit.

Quizplus · Accepted Answer

The firm should continue to produce because price is greater than average variable cost. In the short run, a monopolist will maximize profit or minimize loss by producing output where marginal revenue equals marginal cost. At output Q*, the marginal cost curve intersects the marginal revenue curve, indicating profit maximization. Since price P* is greater than the average variable cost at Q*, the firm can cover its variable costs and some of its fixed costs by continuing to produce. Therefore, the best choice is to continue producing output at Q*.

Figure 10-5 -Refer to Figure 10-5.If the Monopolist Charges Price P* for Charges