Final answer:
A monopoly with a less elastic demand will increase the price while production may remain unchanged due to quantity demanded at current price not changing. Marginal revenue will be higher at each quantity, and the marginal cost remains unaffected. Increases in a monopolistic competitor's demand typically raise both price and quantity supplied.
Step-by-step explanation:
The question pertains to how a monopoly reacts to a change in the elasticity of demand, assuming that the quantity demanded at the current price remains unchanged. When the demand for a monopolist's product becomes less elastic, this means that consumers are less sensitive to changes in price; they will buy approximately the same quantity even if the price increases. Therefore, a profit-maximizing monopoly would increase the price. Since the quantity demanded at the current price does not change and the total revenue is higher with a higher price (due to inelasticity), the monopoly's profits would increase.
In terms of production, it is crucial to understand that a monopolist sets the quantity where the marginal revenue (MR) equals marginal cost (MC). With a less elastic demand, the MR at each quantity is higher. However, because the quantity demanded does not change at the existing price, the monopoly may keep production unchanged if the original equilibrium (where MR=MC) is not altered. In such a case, production would not change.
Now, if we draw the demand curve and marginal revenue curve, we can see that the new MR curve after the demand becomes less elastic would lie above the original MR curve for each quantity. This means that the monopoly can charge a higher price for the same quantity. The marginal cost curve should not be affected by the change in demand elasticity, as costs are associated with production and not with consumer demand elasticity.
Regarding a monopolistic competitor, an increase in demand for its product, possibly from a successful advertising campaign, would usually lead to an increase in both price and quantity supplied. This is because the demand curve would shift to the right, creating a new equilibrium point where the firm can charge a higher price for a higher quantity.