A monopolist is producing at an output level at which MR = $9 and MC = $8. 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

A monopolist should continue producing as long as its marginal revenue exceeds its marginal cost. Since MR = $9 and MC = $8, the monopolist could increase its profits by producing more output (increasing revenue) and lowering its price (increasing demand). Therefore, the best choice is to increase output and reduce price, which is only available in option D.

A Monopolist Is Producing at an Output Level at Which