If the marginal cost of production for a profit-maximizing monopolist increases suddenly in the short run,it will _____
A)lower price to expand revenue possibilities.
B)restrict output to extract a higher price from customers.
C)continue to charge the same price.
D)increase plant size to lower marginal cost.
E)decrease plant size to lower marginal cost.

Question

Quizplus · Accepted Answer

To maximize profit, the monopolist would want to produce where marginal cost equals marginal revenue. When the marginal cost increases suddenly, producing the same quantity of output would mean that the marginal cost is now higher than the marginal revenue, resulting in lower profits. To maintain profit maximization, the monopolist would restrict output to where the new higher marginal cost intersects with the original marginal revenue curve, resulting in a higher price for the reduced output. Therefore, the correct choice is B.

If the Marginal Cost of Production for a Profit-Maximizing Monopolist