A profit-maximizing monopolist is selling 20,000 units of output at $1,400 per unit. The marginal cost of production is constant at $600. What happens if marginal cost rises to $680?

Question

Quizplus · Accepted Answer

When marginal cost increases, the monopolist's profit-maximizing output level will decrease, as the marginal revenue curve shifts downward. The monopolist will increase the price by some amount, but not the full amount of the increase in marginal cost, in order to capture some of the consumer surplus. Therefore, the monopolist will sell less than 20,000 units of output. The exact price and quantity will depend on the elasticity of demand.

A Profit-Maximizing Monopolist Is Selling 20,000 Units of Output at $1,400