A 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

Quizplus · Accepted Answer

If the monopolist is currently producing an output level where price equals marginal cost, then the monopolist is operating at the efficient scale. However, since profits are positive, this means that the monopolist is charging a price that is higher than the marginal cost, and is producing a quantity lower than the efficient scale.

To maximize profits, the monopolist should decrease production and increase price. This will shift the price higher than the marginal cost, and the monopolist will earn even greater profits. Therefore, choice A is the best option.

A Monopolist Is Currently Producing an Output Level Where Price