Q8 of 13 Page 99

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 can earn losses in the short run if the price is less than the minimum of AC. But if the price falls below the minimum of AVC, then the monopolist will stop production.

In short run the firm tries to recover at least the minimum of AVC, so the firm will continue to produce when the price is between the minimum of AVC and the minimum of AC.


More from this chapter

All 13 →
6

Comment on the shape of the MR curve in case the TR curve is a (i) positively sloped straight line, (ii) horizontal straight line.

 7

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given by the schedules below. Use the information to calculate the following:



























Quantity



0



1



2



3



4



5



6



7



8



Price



52



44



37



31



26



22



19



16



13





























Quantity



0



1



2



3



4



5



6



7



8



Price



10



60



90



100



102



105



109



115



123



(a) The MR and MC schedules


(b) The quantites for which the MR and MC are equal


(c) The equilibrium quantity of output and the equilibrium price of the commodity


(d) The total revenue, total cost and total profit in equilibrium.

 9

Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.

 10

What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?