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?

Question

Quizplus · Accepted Answer

The firm is earning economic profit in the short run, which means that it is currently producing at a level where Price > Average Total Cost (P>ATC). The marginal cost of producing an additional unit of output is greater than the marginal revenue, indicating that the firm is currently overproducing. To increase profit, the firm should reduce output to the point where marginal revenue equals marginal cost. Since marginal revenue is $23 and marginal cost is $30, the firm should decrease output. To increase profit, the firm should also raise price until it reaches the point where marginal cost equals marginal revenue. Therefore, the correct answer is A, raise price and lower output.

A Monopolist Earning Economic Profit in the Short Run Determines