A monopoly responds to a decrease in marginal cost by _____ price and _____ output.
A)increasing;decreasing
B)increasing;increasing
C)decreasing;increasing
D)decreasing;decreasing

Question

Quizplus · Accepted Answer

A monopoly has the ability to set prices as they are the sole producer of a particular good/service in the market. When their marginal cost decreases, it means that their cost of producing each additional unit decreases. This gives the monopoly room to produce more units without incurring additional costs. In order to do so, they will decrease their price to incentivize consumers to purchase more of the product. This will lead to an increase in output as well. Therefore, the correct choice is C.

A Monopoly Responds to a Decrease in Marginal Cost by _____