If a monopolist is producing a quantity where marginal revenue is equal to $125 and the marginal cost is equal to $125,the monopolist should:
A) increase production and lower the price to maximize profits.
B) decrease production and increase the price to maximize profits.
C) continue producing at the current price to maximize profits.
D) increase production and increase the price to maximize profits.
E) decrease production and decrease the price to maximize profits.

Question

Quizplus · Accepted Answer

When marginal revenue is equal to marginal cost, the monopolist is producing at the profit-maximizing output level. At this output level, any increase in production will result in a decrease in profits since the marginal cost is greater than the marginal revenue. Similarly, any decrease in production will also result in a decrease in profits since the marginal revenue is greater than the marginal cost. Therefore, the best option for the monopolist is to continue producing at the current quantity and price to maximize profits.

If a Monopolist Is Producing a Quantity Where Marginal Revenue