Monopoly 4 - Break-even & Shut-down

Monopoly 4 - Break-even & Shut-down 

Break-even

A monopolist with its price exactly equal to its ATC, Notice the ATC is just kissing the Demand curve.

• MR = MC
• TR = TC
• Covering all of its implicit and explicit costs.
• Earning a normal profit but not any positive economic profit

2006 AP Microeconomics FRQ, Q1

Look at (IV) The museum maximizes its attendance, as long as it breaks even. (As long as it covers its costs) Look at where the ATC crosses the Demand curve, remember the Demand curve is also the Average Revenue curve, so TR = TC at P2 & Q5.

2010B AP Microeconomics FRQ, Q1

Again, break-even where ATC crosses the Demand curve.

2008B AP Microeconomics FRQ, Q1

Again, break-even where ATC crosses the Demand curve.

Shut-down

Shut-down if:

• price can sell for is lower than the firms average variable cost, or
• if total losses are greater than the firms's fixed costs.

in the graph:

• firm is producing at MR=MC level of output, price is lower than the firm's AVC
• firm cannot afford to even pay its workers for each unit they produce
• Shut-down to minimize losses

No shut-down FRQ,s I've found in the last ten years,, anyone know anything different leave a comment.