The following figure depicts the demand, marginal revenue (MR), and marginal cost (MC) for a monopolist.

-Refer to Figure .How does the monopolist's profit change when MC shifts from C to C'?

Question

The following figure depicts the demand, marginal revenue (MR), and marginal cost (MC) for a monopolist.
  
-Refer to Figure .How does the monopolist's profit change when MC shifts from C to C'?

Quizplus · Accepted Answer

When MC shifts from C to C', the new profit-maximizing quantity (Q) increases from 6 to 8. At Q=6, the monopolist was producing where MR=MC (point A) and was selling the output at a price of $82. At Q=8, the monopolist will now produce where MR=MC (point B) and will sell the output at a price of $80. Therefore, the monopolist's total revenue will increase from $492 to $640, and total cost will increase from $276 to $302. This results in a new profit of $338 compared to the previous profit of $300, which is an increase of $38. Therefore, the answer is (C).

The Following Figure Depicts the Demand, Marginal Revenue (MR), and Marginal