Which of the following best characterizes the tradeoff faced by a monopolist when deciding what quantity to produce?
A) The firm can increase its output, but needs to lower its price for only the marginal unit of output.
B) The firm can increase its output, but to do so it must charge a higher price to all customers.
C) The firm gets more revenue from new customers by increasing output, but gets less revenue from existing customers given that it lowered its price.
D) The firm gets less revenue from new customers by increasing output, but gets more revenue from existing customers given that it lowered its price.

Question

Quizplus · Accepted Answer

A monopolist faces a tradeoff when deciding on the quantity to produce because, to sell additional units, the price must be lowered not just for the marginal unit but for all units sold. This means the firm gains revenue from selling more units but loses revenue per unit from all the units sold at the now lower price.

Which of the Following Best Characterizes the Tradeoff Faced by a Monopolist