If marginal costs increase, a monopolist will:

Question

Quizplus · Accepted Answer

If marginal costs increase, it means that the cost of producing each additional unit of output has gone up. If a monopolist wants to continue maximizing profits, they will have to increase their price to cover the higher costs. However, since they are the only provider of the product, demand is inelastic and so they will also have to decrease output to maintain their higher prices. Therefore, the monopolist will increase price and decrease output.

If Marginal Costs Increase, a Monopolist Will