Question

will the monopolist continue to produce in the short run if a loss is incurred at the best short run level of output? And what happens in the long run

Answer 1

In the short run, the firm should continue to produce because price is greater than average variable cost, results in allocative efficiency because firms produce where price equals marginal cost. .

i.e in the short run, a firm that is operating at a loss(where the revenue is less that the total cost or the price is less than the unit cost) must decide to operate or temporarily shutdown. The shutdown rule statesthat “in the short run a firm should continue to operateif price exceeds average variable costs.