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 $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.
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 $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. 
E) Increase price and hold output constant.

Quizplus · Accepted Answer

According to the graph, the profit maximizing point for a monopoly is where MR=MC, which is at a price of $8 and a quantity of 4. At a price of $6, Rudd is producing more than the profit maximizing quantity, which means his marginal cost is less than his marginal revenue. This implies that Rudd should decrease output and increase price to reach the profit maximizing point. Therefore, the best choice is to increase price and decrease output, which is option B.

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