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 $6, what would you advise Rudd to do?
A) Stay where he is currently operating because he is charging the profit maximizing price.
B) Increase price and decrease output.
C) Decrease price and increase output.
D) Increase output and hold price constant.

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 $6, what would you advise Rudd to do?
A) Stay where he is currently operating because he is charging the profit maximizing price. 
B) Increase price and decrease output. 
C) Decrease price and increase output. 
D) Increase output and hold price constant.

Quizplus · Accepted Answer

As a monopoly, Rudd should operate where marginal revenue (MR) equals marginal cost (MC) to maximize profit. Based on the table provided in Exhibit 9-7, at a price of $6, Rudd's marginal revenue is only $2 while his marginal cost is $5. Therefore, he should decrease his output and increase his price to achieve the profit-maximizing price and quantity combination. Option B, increasing price and decreasing output, is the best choice in this case.

Exhibit 9-7 Monopolist ​

Exhibit 9-7 Monopolist