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In: Economics

Suppose demand for a monopoly’s product falls so that its profit-maximizing price is below average variable...

Suppose demand for a monopoly’s product falls so that its profit-maximizing price is below average variable cost. How much output should the firm supply? Hint: Draw the graph.

A It should increase output.
B ?It should shut down and produce no output.
C It should decrease output.

Solutions

Expert Solution

Ans. B) It should shut down and produce no output

As we can see price monopolist profit maximizing price falls to P2 which is less than the minimum AVC ( point A) so the firm will shut down and produce nothing because the firm will not able to meet out the production cost at this price.

Rahul Sunny answered 2 years ago
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