FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

-A single- price monopolist is currently producing an output level where price equals marginal cost,and profits are positive.In order to maximize profits,this monopolist should

Question

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.
 
-A single- price monopolist is currently producing an output level where price equals marginal cost,and profits are positive.In order to maximize profits,this monopolist should

Quizplus · Accepted Answer

A monopolist maximizes profits by producing where marginal revenue equals marginal cost. At the current output level where price equals marginal cost, the monopolist is not maximizing profits because marginal revenue is greater than marginal cost. Therefore, the monopolist should decrease production and increase price in order to maximize profits. Option E is the only choice that reflects this strategy.

FIGURE 10- 4 Suppose a Monopolist Faces the Demand Curve