A monopoly finds that, at its present level of output and sales, marginal revenue equals $5 and marginal cost is $4.10.Which of the following will maximize profits?
A)Leave price and output unchanged.
B)Increase price and leave output unchanged.
C)Increase price and decrease output.
D)Decrease price and increase output.
E)Decrease price and leave output unchanged.

Question

Quizplus · Accepted Answer

Since the marginal revenue is greater than the marginal cost ($5 > $4.10), the monopoly can increase its profit by producing more. Therefore, decreasing price and increasing output would be the best choice. This would allow the monopoly to sell more units at a slightly lower price, resulting in increased revenue and profits.

A Monopoly Finds That, at Its Present Level of Output