Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then Anna's total economic profit will:
A)fall.
B)remain unchanged.
C)rise.
D)It is not possible to make a determination from the information given.

Question

Quizplus · Accepted Answer

With the reduction in costs, the profit-maximizing price that Anna can charge will also change. As a monopolist, Anna can charge a higher price than her marginal cost to maximize her profits. With lower marginal costs, Anna can charge a lower price and still earn a profit. This means that Anna will increase her quantity sold and increase her total economic profit. Therefore, Anna's total economic profit will rise.

Suppose That Anna Is a Profit-Maximizing Monopolist Who Creates a New