Shutdown (economics) - Monopolist Shutdown Rule

Monopolist Shutdown Rule

A monopolist should shut down when price is less than average variable cost for every output level; in other words, where the demand curve is entirely below the average variable cost curve. Under these circumstances at the profit maximum level of output (MR = MC) average revenue would be lower than average variable costs and the monopolists would be better off shutting down in the short run. The shutdown rule can also be stated as the monopolist should shut down if average revenue is less than average variable costs at all levels of production.