A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $4, and MR = $3. We can conclude that
A) economic profit could be increased by producing more.
B) economic profit could be increased by producing less.
C) economic profit cannot be increased.
D) the firm is earning $10 in economic profits.

Question

Quizplus · Accepted Answer

Since MR is less than MC at the current output level, the firm is producing too much. To maximize economic profit, the firm should produce where MR = MC. In this case, that would be at an output level where P > ATC. Therefore, the firm should produce less to increase economic profit.

A Monopolist Is Producing at an Output Level at Which