Question

A monopoly shuts down when

a)the short run price is below its average variable costs.

b)the long run price is below its average variable costs.

c)the average cost is less than price.

d) never, because it can raise its prices as high as necessary to keep operating and maximize profits.

Answer 1

Answer

Option a

a)the short run price is below its average variable costs.

A monopoly shutdown when the P<AVC, to rework on the costs and make it cost effective and then restart the business. it generally shutdown if the demand curve is below AVC curve. it means the firm cannot make a profit at the given level of costs.