A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs.It faces an inverse demand function given by P = 38 − Q.Suppose fixed costs rise to $200.What will happen in the market?
A) The firm will decrease its output and lower its price.
B) The firm will increase the price.
C) The firm will shut down immediately.
D) The firm continues to produce the same output and charge the same price.

Question

Quizplus · Accepted Answer

Fixed costs do not affect the output level or pricing decisions of a monopoly in the short run, as these decisions are based on marginal costs and demand. The increase in fixed costs does not change the marginal cost or the inverse demand function.

A Monopoly Produces Widgets at a Marginal Cost of $8