Exhibit 9-7 Monopolist

According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?

Question

Exhibit 9-7 Monopolist
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According to the information provided in Exhibit 9-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?

Quizplus · Accepted Answer

As a monopolist, Rudd Ice Company has control over the market price and will always produce at a quantity where Marginal Revenue(MR) equals Marginal Cost (MC). In the given exhibit, if Rudd Ice Company is currently charging a price of $10, it is producing 5 units of output, where MC is equal to $8 and MR is equal to $4. Since MC is less than MR at this quantity, it would be profitable for the company to increase production. By decreasing the price of ice, it will attract more customers, leading to an increase in demand and an increase in the MR curve. As long as the MR curve lies above the MC curve, profits will increase. Therefore, decreasing the price and increasing output would be the best choice for the Rudd Ice Company to maximize profits.

Exhibit 9-7 Monopolist ​

Exhibit 9-7 Monopolist