Suppose that a monopolist calculates that at its present output level, marginal revenue is $1.00 and marginal cost is $2.00. It could maximize profits or minimize losses by
A)decreasing price and increasing output.
B)increasing price and decreasing output.
C)decreasing price and leaving output unchanged.
D)decreasing output and leaving price unchanged.

Question

Quizplus · Accepted Answer

To maximize profits or minimize losses, a monopolist should adjust output so that marginal revenue (MR) equals marginal cost (MC). Since MR ($1.00) is less than MC ($2.00), the firm should decrease output to increase MR and decrease MC until they are equal. Decreasing output typically leads to an increase in price due to the inverse relationship between price and quantity demanded in most markets.

Suppose That a Monopolist Calculates That at Its Present Output