Suppose that a monopolist calculates that at its present output level, marginal revenue is $4.50 and marginal cost is $2.75. It could maximize profits or minimize losses by
A)increasing price and decreasing output.
B)decreasing price and increasing output.
C)decreasing price and leaving output unchanged.
D)decreasing output and leaving price unchanged.

Question

Quizplus · Accepted Answer

To maximize profits or minimize losses, a monopolist should produce until marginal revenue equals marginal cost. Since the marginal revenue ($4.50) is greater than the marginal cost ($2.75), the firm can increase profits by increasing output, which typically involves decreasing price to sell the additional output.

Suppose That a Monopolist Calculates That at Its Present Output