If a profit-maximizing monopoly is producing an output at which marginal cost exceeds marginal revenue,it
A)should raise price and decrease output.
B)should lower price and increase output.
C)should lower price and decrease output.
D)is incurring an economic loss.
E)is maximizing profit.

Question

Quizplus · Accepted Answer

When marginal cost exceeds marginal revenue, it means that producing an additional unit of output costs more than the revenue earned from selling that unit. This is not profitable for the monopoly. To maximize profit, the monopoly should reduce output and increase price, which will decrease total revenue but also decrease total cost. By raising price and decreasing output, the monopoly can continue to produce in the short run while maximizing profit.

If a Profit-Maximizing Monopoly Is Producing an Output at Which