If the current price charged by a monopolist is $5 and marginal cost is $3, then increasing output will always lead to an increase in profit as PMC.

Question

If the current price charged by a monopolist is $5 and marginal cost is $3, then increasing output will always lead to an increase in profit as P>MC.

Quizplus · Accepted Answer

Increasing output in a monopolistic market can lead to a decrease in profit if the additional revenue generated by selling more units (marginal revenue) is less than the marginal cost of producing those extra units. Since monopolists face a downward-sloping demand curve, increasing output also tends to decrease the price, which can make additional sales less profitable.

If the Current Price Charged by a Monopolist Is $5