If marginal costs decrease and the MC curve shifts down, a typical monopolist will
A) reduce price and reduce quantity of output.
B) reduce price and increase quantity of output.
C) increase price and reduce quantity of output.
D) increase price and increase quantity of output.

Question

Quizplus · Accepted Answer

When marginal costs decrease, the monopolist's profit-maximizing output level increases. This means that the monopolist will want to sell more units of output. If the monopolist reduces the price, it will attract more customers and increase the quantity of output sold even further. Therefore, in this situation, the monopolist will reduce price and increase quantity of output.

If Marginal Costs Decrease and the MC Curve Shifts Down