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

-If the firm is able to reduce MC from MC₀ to MC₁ 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
 
-If the firm is able to reduce MC from MC₀ to MC₁ 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

When the firm reduces its MC to MC₁, it will produce at the point where MC = MR, denoted as E₁ on the new demand curve. This will lower the price from P₀ to P₁. Therefore, the correct choice is (A), E₁; P₁.

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