If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, what action should it take?
A) Increase price and decrease output.
B) Increase both price and output.
C) Increase output and decrease price.
D) Decrease both price and output.

Question

Quizplus · Accepted Answer

When marginal cost exceeds marginal revenue, a profit-maximizing monopolist should reduce output to the point where marginal cost equals marginal revenue. Reducing output typically leads to an increase in price due to the monopolist's market power and the inverse relationship between price and quantity demanded.

If a Profit-Maximizing Monopolist Finds That Marginal Cost Is Increasing