Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output:
A) both producer surplus and consumer surplus increase.
B) producer surplus falls but consumer surplus rises.
C) both producer surplus and consumer surplus decrease.
D) producer surplus rises but consumer surplus falls.

Question

Quizplus · Accepted Answer

Reducing output from the profit-maximizing level decreases total surplus because it leads to a loss in consumer surplus due to higher prices and a loss in producer surplus due to reduced sales.

Suppose a Monopolist Is at the Profit-Maximizing Output Level