Suppose that a single-price monopolist knows the following information: The monopolist could maximize profits in the short run by

Question

Suppose that a single-price monopolist knows the following information:  The monopolist could maximize profits in the short run by

Quizplus · Accepted Answer

The monopolist should lower the price and increase output. This is because the marginal revenue (MR) is less than the marginal cost (MC) at the current output level, as the MR curve lies below the demand curve. By producing more units, the MR will increase, and the monopolist can lower the price to increase demand. As long as the MR is greater than MC at the new output level, the firm should continue to produce. This will result in a higher profit than staying at the current price and output level.

Suppose That a Single-Price Monopolist Knows the Following Information