Suppose that a profit-maximizing monopolist has a plant of optimal size and is producing a level of output at which price is $30,average total cost is $55,and average fixed cost is $40.The firm should

Question

Quizplus · Accepted Answer

In the short run, a firm should continue to operate if it can cover its variable costs, even if it's not covering its total costs. Here, the average total cost is $55, and the average fixed cost is $40, so the average variable cost is $15 ($55 - $40). Since the price ($30) is above the average variable cost, the firm should operate in the short run (A). In the long run, if the firm cannot cover its total costs, it should exit the market (C). Thus, both A and C are correct.

Suppose That a Profit-Maximizing Monopolist Has a Plant of Optimal