Answer to Question #228131 in Microeconomics for Emy

Question

Do monopoly firms always make profit? (3 marks)
a. And when should a monopoly firm shuts down? Justify your answer

Answer 1

Monopoly firms always make profit in the short run because they set their prices at levels higher than the marginal cost and hence earn positive economic profits.

A monopoly firm should shut down if the average revenue is less than the average variable cost for every output level.