At a given level of output, a monopolist's marginal revenue is $10, marginal cost is $6, and economic profit is zero. If the market demand curve is downward sloping and its marginal cost curve is upward sloping, the monopolist:
A)can increase profit by increasing both output and price.
B)can increase profit by increasing output and decreasing its price.
C)can increase profit by increasing its price and decreasing its output.
D)should exit the market if significant fixed costs have been incurred.
E)can increase profit by decreasing both output and price.

Question

Quizplus · Accepted Answer

Since the monopolist's marginal revenue ($10) is greater than its marginal cost ($6), increasing output would allow the firm to sell additional units at a price that exceeds their cost, thereby increasing profit. However, because the demand curve is downward sloping, to sell more, the monopolist must lower the price. This strategy aligns with option B, which suggests increasing output and decreasing price to increase profit.

At a Given Level of Output, a Monopolist's Marginal Revenue