A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?
A) Raise price and lower output.
B) Lower price and lower output.
C) Raise price and raise output.
D) Lower price and raise output.
E) Lower output, but leave price unchanged.

Question

Quizplus · Accepted Answer

The firm is currently earning a profit as long as the price it charges is greater than its marginal cost. However, it can increase its profit by reducing its output and raising its price, which will increase the profit per unit sold. Lowering the output will also reduce its total costs, thereby increasing its total profit. Option A is therefore the best choice.

A Monopolist Earning Economic Profit in the Short Run Determines