Question

In short run equilibrium of a monopolistic a plant will be shut down only if _______________.

• A. loss is equal to its fixed cost
• B. loss is more than its fixed cost
• C. profit is more than its fixed cost
• D. all of the above

Answer 1

The correct option is B loss is more than its fixed cost

Monopolistic competition refers to the competition where the market has large number of buyers and sellers who deals in differentiated products with excess production capacity in the long run and full control over the price where freedom of entry and exit of new firms is restricted by patents, investment etc. Under this competition the firms will shut down in the short run if the losses are more than its fixed cost which means that the firms are not even covering their variable cost.