Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should
A) retain its current price-quantity combination.
B) increase both price and quantity sold.
C) charge a lower price.
D) charge a higher price.

Question

Quizplus · Accepted Answer

When a monopolist is operating on the inelastic portion of its demand curve, the price increase leads to a revenue increase. Thus, to maximize profits, the monopolist should charge a higher price - corresponding to a quantity that customers are willing to pay for at the higher price. This will lead to an increase in total revenue and profit, as long as the price increase does not push the monopolist into the elastic portion of the demand curve where the quantity demanded drops more than the price increase (leading to a revenue decrease).

Assume a Pure Monopolist Is Currently Operating at a Price-Quantity