A monopolist enjoys a monopoly over the right to sell automobiles on a certain island.He imports automobiles from abroad at a cost of $10,000 each and sells them at the price that maximizes profits.One day, the island's government annexes a neighboring island and extends the monopolist's monopoly rights to this island.People on the annexed island have the same tastes and incomes and there are just as many people as on the first.
A)The monopolist doubles his price and his sales stay constant.
B)The monopolist keeps his price constant and his sales double.
C)The monopolist raises his price but does not necessarily double it.
D)The monopolist's profits more than double.
E)None of the above.

Question

Quizplus · Accepted Answer

The monopolist can keep the price constant and double sales because the annexed island has the same demand conditions, effectively doubling the market size.

A Monopolist Enjoys a Monopoly Over the Right to Sell