Question

You are a self-employed profit-maximizing consultant specializing in monopolies. Five firms are currently seeking your advice, and although the information they have supplied to you is incomplete, your expert knowledge allows you to go back and make a definite recommendation in each case. Select one of the following recommendations for each firm in the short run.
a. remain at the current output level
b. increase output
c. reduce output
d. shut down

Answer 1

Answer:

The answer is option A) The short run recommendation for a monopolistic firm is to remain at the current output level

Explanation:

In the short run, monopolistic firms could record losses but still continue to run in anticipation of a sustainable profit in the long run.

A self-employed profit-maximizing consultant specializing in monopolies understands that the short run losses experienced in a monopoly is also an advantage in that it reduces the participation of more players in the same industry/ market segment.

The best recommendation would be to remain at the current output level during the short run to cut losses, sustain patronage and then develop a long term strategy that will guarantee profitability in the long run.