Question

Suppose that for a monopoly average total cost is $35, marginal cost is $30, and marginal revenue is $35 with a selling price of $40. To maximize profits, the monopoly should A decrease both output and price. B increase output but decrease price. C increase both output and price. D decrease output but increase price.

Answer 1

C increase both output and price.

Step-by-step explanation:

A monopolist respond to an increase in demand by increasing output and price.

In the given case, Marginal revenue is greater than marginal cost at those levels of output produced and the firm can make higher profits by increasing number of output. A monopolist can determine its profit maximizing price by analysing the marginal revenue and marginal cost of producing extra unit of output.