If the variable costs of a profit-maximizing pure monopolist decline, the firm should
A) produce more output and charge a higher price.
B) produce more output and charge a lower price.
C) reduce both output and price.
D) raise both output and price.

Question

Quizplus · Accepted Answer

As variable costs decline, the marginal cost of production decreases. Therefore, the monopolist should produce more output to maximize profit. To sell this additional output, the firm should reduce the price. This will increase the total revenue and hence the profit of the monopolist.

If the Variable Costs of a Profit-Maximizing Pure Monopolist Decline