Figure 15-13

-Refer to Figure 15-13.If the monopoly operates at an output level less than Q0,then an increase in output toward (but not exceeding)Q0 would
A) raise the price and raise total surplus.
B) lower the price and raise total surplus.
C) raise the price and lower total surplus.
D) lower the price and lower total surplus.

Question

Figure 15-13
 
-Refer to Figure 15-13.If the monopoly operates at an output level less than Q0,then an increase in output toward (but not exceeding)Q0 would
A) raise the price and raise total surplus. 
B) lower the price and raise total surplus. 
C) raise the price and lower total surplus. 
D) lower the price and lower total surplus.

Quizplus · Accepted Answer

According to the graph, at output levels less than Q0, the monopoly is producing at a point where the marginal revenue (MR) is greater than the marginal cost (MC). This implies that the monopoly can increase its profits by producing more output until MR=MC, which is at point Q0. As the monopoly increases its output towards Q0, the price will decrease due to the inverse relationship between price and quantity demanded. However, the increase in output will also increase the total surplus in the market, as more units of the product will be available for consumption. Therefore, an increase in output towards Q0 would lower the price and raise total surplus, making option B the correct choice.

Figure 15-13 -Refer to Figure 15-13.If the Monopoly Operates at an Output