At a price of $20, the marginal revenue of a monopolist is $12. If the marginal cost of production is $10, what should the monopolist do in order to maximize profits?
A) Increase its price.
B) Decrease its price.
C) Keep its price at the same level.
D) There is not enough information to solve.

Question

Quizplus · Accepted Answer

To maximize profits, a monopolist should produce until marginal revenue (MR) equals marginal cost (MC). Since MR ($12) is greater than MC ($10), the monopolist can increase profits by producing more, which typically involves decreasing the price to sell more units.

At a Price of $20, the Marginal Revenue of a Monopolist