The correct answer is: D. Less than average variable cost.
A monopolist will shut down in the short run if it is producing a level of output where marginal revenue is equal to the short-run marginal cost and price is less than average variable cost. This is because the monopolist will be incurring losses at this level of output, and it is better to shut down and incur only fixed costs than to continue producing and incur both fixed and variable costs.
To understand this, it is helpful to understand the concept of average variable cost. Average variable cost is the total variable cost divided by the quantity produced. Variable costs are costs that vary with the level of output, such as the cost of raw materials. Fixed costs are costs that do not vary with the level of output, such as the cost of rent.
When a monopolist produces a level of output where marginal revenue is equal to the short-run marginal cost, it is producing at the point where the marginal cost curve intersects the short-run marginal revenue curve. This is the point where the monopolist is maximizing its profits.
However, if the price is less than average variable cost, then the monopolist is incurring losses at this level of output. This is because the average variable cost is the total variable cost divided by the quantity produced, and the total variable cost is greater than the total revenue.
In this case, the monopolist is better off shutting down and incurring only fixed costs than to continue producing and incurring both fixed and variable costs. This is because the fixed costs are sunk costs, which cannot be recovered. The monopolist will not be able to make up for its losses by producing at a lower level of output, because the price is still less than average variable cost.
Therefore, the monopolist will shut down in the short run if it is producing a level of output where marginal revenue is equal to the short-run marginal cost and price is less than average variable cost.