Narrbegin Exhibit 8.6 Monopolist
-According to the information provided in Exhibit 8.6, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?
A) Stay where he is currently operating because he is charging the profit-maximising price.
B) Increase price and increase output.
C) Decrease price and increase output.
D) Increase output and hold price constant.

Question

Narrbegin Exhibit 8.6 Monopolist  
-According to the information provided in Exhibit 8.6, if the Rudd Ice Company is a monopoly and is currently charging a price of $10, what would you advise Rudd to do?
A) Stay where he is currently operating because he is charging the profit-maximising price. 
B) Increase price and increase output. 
C) Decrease price and increase output. 
D) Increase output and hold price constant.

Quizplus · Accepted Answer

The graph shows that at a price of $10, the monopolist is producing at a point where the marginal revenue (MR) equals marginal cost (MC). However, at this point, the price is above the demand curve, resulting in consumer surplus being reduced to zero. Therefore, by decreasing the price, the monopolist can increase output and capture some of the lost consumer surplus, leading to overall higher profits. Increasing output alone may not be beneficial as it could lead to a surplus in the market, which would drive down the price and reduce the monopolist's profits. Similarly, increasing price may lead to decreased demand and lower profits. Therefore, the best option is to decrease price and increase output.