A monopolist is producing at an output level at which MR = $6 and MC = $9. It could increase profits
A) by increasing both output and price.
B) by reducing output and by increasing price.
C) by reducing both output and price.
D) by increasing output and by reducing price.

Question

Quizplus · Accepted Answer

The monopolist is currently producing at a level where marginal revenue (MR) is less than marginal cost (MC), which means that the last unit produced is costing more than it is bringing in. To increase profits, the monopolist needs to reduce its output. This would increase the marginal revenue and reduce marginal cost.

On the other hand, the monopolist can increase the price to increase profit as it has control over the price in the market. By increasing the price and reducing output, it can increase profit. However, increasing both output and price will not increase profit as that would mean more cost and a decrease in demand, respectively.

Therefore, reducing output and increasing the price is the best option to increase profit.

A Monopolist Is Producing at an Output Level at Which