Figure 17-2 represents a monopolist faced with a decrease in the demand for her product. She initially charges P0 and produces Q0.
Figure 17-2
-Without changes in MC to maximize profits, the firm will produce at point ________ on the new demand curve and lower price to ________.
A) E1; P1
B) E0; P0
C) E2; P2
D) E0 or E1; P0

Question

Figure 17-2 represents a monopolist faced with a decrease in the demand for her product. She initially charges P0 and produces Q0.
Figure 17-2 
-Without changes in MC to maximize profits, the firm will produce at point ________ on the new demand curve and lower price to ________.
A) E1; P1 
B) E0; P0 
C) E2; P2 
D) E0 or E1; P0

Quizplus · Accepted Answer

To maximize profits without changes in marginal cost (MC), the firm will produce where marginal revenue (MR) equals MC on the new demand curve, which is at point E2, and lower the price to P2.

Figure 17-2 Represents a Monopolist Faced with a Decrease in the Demand