For a monopolist producing a level of output at which market demand is inelastic,_____
A)short-run profit is maximum.
B)a decrease in price increases total revenue.
C)a decrease in price decreases total cost.
D)a decrease in price decreases total revenue.
E)an increase in output increases short-run economic profit.

Question

Quizplus · Accepted Answer

When the market demand is inelastic, a decrease in price does not lead to a proportional increase in the quantity demanded, thus reducing the total revenue. Therefore, a decrease in price decreases total revenue. As a monopolist, producing at this level of output, short-run profit may still be positive, but not maximum. Increasing output may not increase short-run economic profit as the price may decrease and offset the gain from producing more.

For a Monopolist Producing a Level of Output at Which