If a monopolist is producing a quantity where marginal revenue is equal to $125 and the marginal cost is equal to $125,the monopolist should ________ to maximize profits.
A) increase production and lower the price
B) decrease production and increase the price
C) continue producing at the current price
D) increase production and increase the price
E) decrease production and decrease the price

Question

Quizplus · Accepted Answer

When marginal revenue (MR) is equal to marginal cost (MC), the monopolist is producing the profit-maximizing quantity. In this case, the quantity where MR=MC is already being produced, so the monopolist should continue producing at the current price to maximize profits. Increasing production and lowering the price (choice A) or increasing production and increasing the price (choice D) would lower the marginal revenue and potentially increase the marginal cost, resulting in lower profits. Similarly, decreasing production and decreasing the price (choice E) would also result in lower profits. Lowering production and increasing the price (choice B) might increase profits in the short run, but in the long run, it will lead to a loss of customers and revenue. Therefore, the best choice is to continue producing at the current price.

If a Monopolist Is Producing a Quantity Where Marginal Revenue