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 a monopolist faces an increase in marginal cost, it will adjust its output and price to continue maximizing profit. The new marginal cost is still below the original price, indicating that the firm can still make a profit per unit sold, but it will produce and sell less than before because the increased cost reduces the profit margin per unit. The price will increase, but by less than the increase in marginal cost, because the monopolist also has to consider the demand curve's slope, which dictates that higher prices reduce quantity demanded.

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