The Las Vegas Shampoo Company has a monopoly over the production of a special hair growth shampoo. The Las Vegas Shampoo Company will find it profitable to reduce output as long as marginal revenue:

Question

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Marginal revenue is the additional revenue earned from selling one more unit of output. Marginal cost is the additional cost incurred from producing one more unit of output. A monopolist will find it profitable to reduce output as long as marginal revenue is less than marginal cost. This is because reducing output will increase the price of the shampoo, which will increase marginal revenue. However, reducing output will also increase the average cost of production, which will decrease marginal cost. Therefore, a monopolist will find it profitable to reduce output as long as marginal revenue is less than marginal cost.

The Las Vegas Shampoo Company Has a Monopoly Over the Production