If a monopoly firm is at a level of output where MC equals $10 and is increasing,MR equals $10,and average variable cost equals $9.To maximize profits,the firm should:
A) increase both output and price.
B) increase output but decrease the price.
C) decrease output and increase the price.
D) not change either the output or the price.

Question

Quizplus · Accepted Answer

The monopolist is currently producing at a level where marginal cost (MC) equals marginal revenue (MR), which is the profit-maximizing condition for a monopoly. Therefore, any further increase in output would cause MC to exceed MR, resulting in a reduction in profit. Additionally, the average variable cost (AVC) is $9, which means that the firm is covering all of its variable costs and some portion of its fixed costs. Therefore, the firm should continue producing at the current level, which will allow it to earn a positive profit in the short run. Thus, the monopolist should not change either the output or the price.

If a Monopoly Firm Is at a Level of Output