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 monopolist is earning economic profit, indicating that its price (P) exceeds the average total cost (ATC) at the current output level. In the short run, the profit-maximizing rule for a monopolist is to produce where marginal revenue (MR) equals marginal cost (MC). Since MR is less than the price, the firm is not maximizing profit at the current output level. To increase profit, the firm should adjust its output towards the level where MR=MC, which means reducing output. As a result, the price will increase, and the profit per unit sold will increase as well. Therefore, the best choice is A) raise price or lower output.

A Monopolist Earning Economic Profit in the Short Run Determines