Question

A monopoly:

A. will shut down if losses exceed total fixed

B. will maximize profit by producing a quantity where MR = AR

C. faces the market demand curve which is perfectly elastic.

D. has a marginal revenue curve which slopes downward and lies above the demand curve.

E. all the above.

Answer 1

A. will shut down if losses exceed total fixed

Explanation :

AR=demand curve =price.

In monopoly, firm has power and thus it faces downward sloping demand curve and marginal revenue curve is below the demand curve. Firm maximises it's profit where MR equals MC and charge price on the demand curve above where MR equals MC. So MR<AR in monopoly.

Firm will shutdown if loss is greater than fixed cost. Because when loss is more than fixed cost we can reduce the loss by shutting down as after that losss will be equal to fixed cost.