In 1984, a judge declared that American Telephone and Telegraph was a monopolist. Assuming that AT&T has a linear demand curve and that it is maximizing its profits at its current level of output, one may conclude that, if AT&T were to increase its price, its total revenue would:
A)rise.
B)fall.
C)remain unchanged.
D)There is insufficient information to make a determination.

Question

Quizplus · Accepted Answer

If a linear demand curve is assumed, increasing the price will lead to a decrease in quantity demanded. Since AT&T is a monopolist, it has market power and can set its own price. Therefore, if it increases its price, it will sell fewer units of output. The decrease in quantity sold will more than offset the increase in price, leading to a decrease in total revenue.

In 1984, a Judge Declared That American Telephone and Telegraph