If a profit-maximizing monopolist finds that marginal cost is increasing and that it exceeds marginal revenue, it should:
A)increase output and decrease price.
B)increase price and decrease output.
C)decrease both price and output.
D)increase both price and output.
E)increase price, keeping output unchanged.

Question

Quizplus · Accepted Answer

If marginal cost is increasing and exceeds marginal revenue, the monopolist is operating in the decreasing portion of its marginal revenue curve. Therefore, in order to maximize profits, the monopolist should decrease output and increase price until marginal revenue equals marginal cost.

If a Profit-Maximizing Monopolist Finds That Marginal Cost Is Increasing