1)If one gas station reduces its prices, must other gas stations match the price reduction? Why or why not? 2)Determine economic criteria a profit maximizing monopolist uses to decide how much to produce

1)It is not necessarily that when one gas station reduces the price of its product other gas stations will reduce the price of their products too. The reason behind this is that some consumers have developed brand loyalty. Therefore, even though a certain gas station lowers their price some customers may still buy at the stations where the same product is priced at a higher price due to brand loyalty.

2)A monopolist works on the economic principle of marginality to decide the profit-maximizing level of output. It chooses to produce at the level where its marginal revenues are equal to the marginal cost i.e the additional cost of producing an extra unit of output is equal to the additional revenues gained from that extra unit. Any deviation from this would mean that either is benefits are lower than the cost or cost are too high in response to the benefit gained.

A monopolist chooses to produce at the point where MR=MC; and charges the corresponding price from the consumers at their demand curve.