Suppose that a profit-maximizing monopoly firm experiences a substantial technological change that reduces its marginal and average total costs by $40.Suppose also that the firm lowers its price in response to the reduction in its costs of production.Lowering its price will cause the firm's total revenue to:
A) rise.
B) fall.
C) remain unchanged.
D) It is not possible to make a determination from the information given.

Question

Quizplus · Accepted Answer

When a monopoly firm experiences a reduction in its marginal and average total costs, it can increase its profits by either keeping the same price and increasing its profit margin, or by lowering its price to increase its sales volume. In this case, the firm lowers its price, which will cause an increase in its sales volume, as some consumers who were previously priced out of the market may now be able to afford the product. This increase in sales volume will more than offset the reduction in the price, resulting in a higher total revenue for the firm. Therefore, the correct answer is A) rise.

Suppose That a Profit-Maximizing Monopoly Firm Experiences a Substantial Technological