When a monopoly changes price to respond to a change in marginal cost, the _______ in _______ is _______ than the _______ .
A) change; price; less; the change in marginal cost
B) increase; price; greater; change in output
C) decrease; output; greater; change in output
D) change; price; equal to; change in marginal cost

Question

Quizplus · Accepted Answer

In a monopoly, when responding to a change in marginal cost, the change in price is less than the change in marginal cost due to the monopolist's market power and the downward-sloping demand curve they face. This allows them to spread the cost change over a larger quantity of output, resulting in a smaller percentage change in price than the percentage change in marginal cost.

When a Monopoly Changes Price to Respond to a Change