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 the price is greater than average variable cost.
B) shut down because the price is greater than marginal cost.
C) shut down because the 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 the price is greater than average variable cost. 
B) shut down because the price is greater than marginal cost. 
C) shut down because the price is less than average total cost. 
D) continue to produce because a monopolist always earns a profit.

Quizplus · Accepted Answer

In the short run, a monopolist should continue to produce as long as the price exceeds the average variable cost. In this figure, the point where the price intersects the average variable cost curve is higher than the point where the price intersects the marginal cost curve, indicating that the price is greater than the average variable cost. Therefore, the monopolist should continue to produce at output Q* at price P* to maximize profit or minimize loss in the short run.

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