Shut-Down Situations of Monopoly in Short-Run

Shut-Down Situations of a Monopolist in the Short-Run

a)      When AR < AC but AR is still greater than AVC.

(Or AVC lies below AR)

39_shot down.png

TR       =          ______

TC       =          ______

LOSS =          ______

If the firm were to shut-down,

LOSS =          TFC     = ______

 

b)      When AR < AC as well as AVC.

(or both AC and AVC curves lie above AR)

2458_Shut down.png

TR          =          ______

TC          =          ______

LOSS     =          ______

But, if the firm were to shut-down,

LOSS     =          TFC     = ______

Monopolist's Short-Run and Long-Run Equilibrium Positions

Since there are barriers to entry and no rival firms in the industry, monopolist is able to continue with its supernormal, normal or subnormal profit in the long run.

Therefore, there is no difference between the monopolist's short-run and long run equilibrium positions.

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