Concept:The lowest price a monopolist can charge in the short run is the shut-down price, where price just covers the minimum average variable cost (
AVC).
Explanation:At price P2, the monopolist is able to cover its variable costs, so it is better to continue production than to shut down completely.
Any price below P2 would be less than the
AVC, meaning the monopolist cannot recover its variable costs from selling its output.
In that case, the firm would run at a greater loss and should shut down in the short run.
Thus, among the prices shown, P2 is the lowest price the monopolist can charge and still remain in production.
Answer:A. P2
