If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably
A) raise price and reduce output.
B) reduce price and raise output.
C) start operating at the inelastic portion of its demand curve.
D) increase production so that MR MC.

Question

If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably
A) raise price and reduce output.
B) reduce price and raise output.
C) start operating at the inelastic portion of its demand curve.
D) increase production so that MR > MC.

Quizplus · Accepted Answer

In the face of competition, a monopoly would likely reduce prices in order to maintain market share and compete with the new entrants. It may also increase output in order to lower costs per unit, making it possible to lower prices while still making a profit. This is assuming that the foreign multinational corporations or potential new entrants pose a significant enough threat to the monopoly's market power.

If a Monopoly Is Faced with Competition from Foreign Multinational