Faced with a decrease in the demand for its product,a monopolist will lower prices and maintain output at its previous level if
A)the gain in profit is less than the increase in real wages paid.
B)the gain in profit is less than the decrease in real wages paid.
C)the gain in profit is less than the menu costs.
D)the gain in profit is greater than the increase in menu costs.

Question

Quizplus · Accepted Answer

If the gain in profit from lowering prices and maintaining output is greater than the increase in menu costs, then the monopolist will choose to lower prices and maintain output. Menu costs refer to the costs associated with changing prices such as printing new menus or updating price tags. Therefore, if the gain in profit from lowering prices and maintaining output is less than the menu costs, it would not be profitable for the monopolist to lower prices. The options A and B are irrelevant to the situation described.

Faced with a Decrease in the Demand for Its Product,a