question archive A monopoly is producing a level of output at which price is $80, average total cost is $100, and average fixed cost is $10
A monopoly is producing a level of output at which price is $80, average total cost is $100, and average fixed cost is $10
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A monopoly is producing a level of output at which price is $80, average total cost is $100, and average fixed cost is $10. In order to maximize profit, the firm should:
a) produce more
b) keep output the same
c) produce less
d) shut down
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The correct option is d).
The shutdown situation for a monopoly arises when the price for the good is less than the average variable cost of the given good.
The average variable cost of the good is:
Since the price is less than the AVC, so the monopoly should shutdown.
