Q8 of 14 Page 6

Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?

A monopolist firm means there is a single seller of the product in the market. A monopolist firm can incur loss in the short run and that is nothing abnormal. It will incur a loss when its price is less than the minimum point of the Average Cost. It will continue to produce its output at this level as long as it can cover up its average variable costs by selling a particular product. But if a situation arises that the price is falling below the average variable cost, then it is in such a poor situation when it cannot even cover up its variable costs and thus it will not produce its output further. A monopolist firm will only produce its output upto that level till which its variable cost get covered by selling its output.


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