Figure 15-2
-Refer to Figure 15-2.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 15-2 
-Refer to Figure 15-2.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

In the short run, the monopolist should continue to produce as long as price is greater than average variable cost (AVC). This is because even if the monopolist is not earning a profit, it is covering its variable costs, which it would not be able to recover if it shuts down. In this case, price is greater than AVC, so the monopolist should continue to produce.

Figure 15-2 -Refer to Figure 15-2.If the Monopolist Charges Price P* for Price