Question

If a monopolist is producing a quantity where marginal revenue is equal to $16 and the...

If a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $12, the monopolist should ________ to maximize profits. Group of answer choices

a. continue producing at the current price

b. increase production and lower the price

c. increase production and increase the price

d. decrease production and increase the price

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Homework Answers

Answer #1

A monopoly firm is a single seller because there is barriers to entry. In a pure monopoly industry there is a single firm.

A monopolist firm is a maker and profit-maximizing condition is

MR=MC

Since at the current output level MR is $16 and MC is $12. It means at current output MR is greater than MC. Hence for maximizing profit, firm should produce more output and decrease the price.

Hence it can be said that if a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $12, the monopolist should increase an lower the price to maximize profits.

Hence option b is the correct answer.

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