Question

Monopolists are thought to be “price setters in markets. It is not possible for a monopolist to loose money in the short run?

Answer 1

Yes, ii is possible for a monopolist to loose money in the short run.

A monopolist is an individual, group, or company that controls all of the market for a particular good or service. A price maker or price setter is an entity, such as a firm; with a monopoly that gives it the power to influence the price it charges as the goods it produces does not have perfect substitutes. A monopoly firm is a price-setter simply because the absence of competition from other firms frees the monopoly firm from having to adjust the prices it charges downward in response to the competition. Absent that competitive atmosphere, a sole provider can set the price he or she wants.

In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition. Also, in the short-run, a monopolist might incur losses but will shut down only if the losses exceed its fixed costs.

Here the best short run level of output is OB units which is given by the point L where MC = MR. A monopolist sells OB units of output at price CB. The total revenue of the firm is equal to OBCF. The total cost of producing OB units is OBHE. The monopoly firm suffers a net loss equal to the area FCHE. If the firm ceases production, it then has to bear to total fixed cost equal to GKHE. The firm in the short run prefers to operate and reduces its losses to FCHE only. In the long, if the loss continues, the firm shall have to close down.