When a monopolistic firm or any type of firm for that matter can no longer afford to satisfy it’s AVC then it should shutdown because even if they can’t completely fufill their Average fixed cost they can hope to make some profit and start to pay off their average fixed cost, and they can hope to expand so as to obtain economies of scale, while leaving diseconomies of scale. Finally if firm can no longer satisfy the lowest level of average total then they should be in the shutdown phase because they can no longer afford to pay off anything, and they sure as hell aren’t satisfying the lowest portion of Average Total Cost.
Leave a Comment