CFA Practice Question
Suppose that a monopolist is currently producing at an output at which marginal revenue equals $100 and marginal cost equals $500. The monopolist will maximize profits (or minimize losses) by ______
A. increasing price, increasing quantity.
B. decreasing price, increasing quantity.
C. increasing price, decreasing quantity.
Explanation: Marginal revenue is less than marginal cost. Thus, the monopolist should produce less. At a lower quantity, price can be increased.
User Contributed Comments 2
| User | Comment |
|---|---|
| nicholaslb | can someone explain? |
| weebe | Monopoly maximizes profit at MR = MC. So it should bring price up and quantity down to increase MR, till MR = MC. |