Exhibit 8-7 Monopolist According to the information provided in Exhibit 8-7, if the Rudd Ice Company was a monopoly and is currently charging a price of $10, 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 increase output.
C) Decrease price and increase output.
D) Increase output and hold price constant.
E) Increase price and hold output constant.

Question

Exhibit 8-7  Monopolist  According to the information provided in Exhibit 8-7, if the Rudd Ice Company was a monopoly and is currently charging a price of $10, 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 increase output. 
C) Decrease price and increase output. 
D) Increase output and hold price constant. 
E) Increase price and hold output constant.

Quizplus · Accepted Answer

As a monopolist, Rudd should be operating where marginal revenue (MR) equals marginal cost (MC) to maximize profit. Looking at the table, at a price of $10, the monopolist is producing 30 units and earning a profit of $60 ($300 total revenue - $240 total cost). However, at a quantity output of 40 units, the marginal cost is $10, which is equal to the current price of $10. Therefore, by increasing output to 40 units, the monopolist can still charge $10 and earn a higher profit of $100 ($400 total revenue - $300 total cost). Therefore, option C of decreasing price and increasing output would be the best choice as it increases profits.

Exhibit 8-7 Monopolist According to the Information Provided in Exhibit