Question

Which of the following is true?
A) A monopolist produces on the inelastic portion of its demand.
B) In the short run, a monopoly will shut down if P < AVC.
C) A monopolist always earns an economic profit.

Answer 1

Answer:

B) In the short run, a monopoly will shut down if P < AVC.

Explanation:

If the price will be less than the AVC it means that the firm is not able to recover its variable coats and hence will not be able to produce. So it must shut down if it reaches this point in the short run because there is lesser scope of error in short run.