Figure 17-2 represents a monopolist faced with a decrease in the demand for her product.She initially charges P₀ and produces Q0.
Figure 17-2

-Without changes in MC to maximize profits,the firm will produce at point ________ on the new demand curve and lower price to ________.
A)E₁;P₁
B)E₀;P₀
C)E₂;P₂
D)E₀ or E₁;P₀

Question

Figure 17-2 represents a monopolist faced with a decrease in the demand for her product.She initially charges P₀ and produces Q0.
Figure 17-2
 
-Without changes in MC to maximize profits,the firm will produce at point ________ on the new demand curve and lower price to ________.
A)E₁;P₁ 
B)E₀;P₀ 
C)E₂;P₂ 
D)E₀ or E₁;P₀

Quizplus · Accepted Answer

To maximize profits without changes in marginal cost (MC), the firm will adjust production to the new equilibrium point on the demand curve, which is E₂, and lower the price to P₂.

Figure 17-2 Represents a Monopolist Faced with a Decrease in the Demand