An unregulated monopoly finds that its marginal cost exceeds its marginal revenue. In order to increase its profit, the firm will
A) raise its price and decrease its output.
B) continue to produce this level of output because any change will lower its profit.
C) lower its price and increase its output.
D) raise its price and increase its output.

Question

Quizplus · Accepted Answer

When a monopoly finds that its marginal cost exceeds its marginal revenue, it indicates that the firm is producing more than the profit-maximizing quantity. To increase profit, the firm should reduce its output, which typically allows it to raise the price due to its market power, thus A) raise its price and decrease its output is the correct strategy.

An Unregulated Monopoly Finds That Its Marginal Cost Exceeds Its