If a monopolist is producing the quantity at which price equals marginal cost, it should
A) continue to produce this amount if it wants to maximize profits.
B) reduce output if it wants to maximize profits.
C) reduce price and keep output unchanged if it wants to maximize profits.
D) increase output if it wants to maximize profits.

Question

Quizplus · Accepted Answer

A monopolist maximizes profits by producing where marginal revenue equals marginal cost, not where price equals marginal cost. If price equals marginal cost, the monopolist is not maximizing profits and should reduce output to increase profits.

If a Monopolist Is Producing the Quantity at Which Price