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1) Suppose that a monopolist calculates that at its present output level, marginal revenue is $3
1) Suppose that a monopolist calculates that at its present output level, marginal revenue is $3.00 and marginal cost is $3.00. It could maximize profits or minimize losses by
Multiple Choice
increasing price and decreasing output. maintaining its current price and maintaining its current output. decreasing output and leaving price unchanged. decreasing price and leaving output unchanged.
2) The quantity demanded of a product increases as A. The price of the product rises. B. The price of the product falls. C. Consumer income rises. D. The prices of other products fall.
Expert Solution
1)
Given,
Marginal Revenue = $3
Marginal Cost = $3
A monopolist maximizes his profit at the point where its marginal cost curve cuts its marginal revenue curve ( MC=MR ). So, As we can see that present output level, marginal revenue and marginal cost is equal to $3.00. Which means that he is already at the profit maximizing level of output. Therefore to maximize profit or minimize loss, he should maintain at its current price and current output.
So, the correct option is 2nd "maintain at its current price and current output".
2) Quantity demanded is inversely related to price of product. So, The quantity demanded of a product increases as the price of the product falls. The correct option is B "The price of the product falls".
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