If a monopolist faced a downward sloping average cost curve that lies fully above market demand, he will not produce if he can only charge a single per-unit price, but it would also be inefficient for him to produce.

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Quizplus · Accepted Answer

A monopolist facing a downward sloping average cost curve that lies fully above market demand may still produce if the price covers marginal costs, aiming to maximize profits where marginal cost equals marginal revenue, even if average costs are not covered. The decision to produce depends on whether the firm can cover its variable costs in the short run and on strategic considerations for the long run. The inefficiency arises from the monopolist's power to set prices above marginal costs, not from the decision to produce per se.

If a Monopolist Faced a Downward Sloping Average Cost Curve