A monopolist charging one price faces a downward-sloping demand curve. At its current level of...

Question:

A monopolist charging one price faces a downward-sloping demand curve. At its current level of output, the firm has a MR of $10 and MC of $6. If its MC is upward sloping, the firm:

a. is producing its profit-maximizing level of output

b. could increase its profit by increasing its output

c. could increase its profit by increasing its price

d. should exit the market if it has a positive fixed cost

Downward-Sloping Demand

The downward-sloping demand curve is the feature of majority market forms. The demand curve is downward sloping shows the demand is going to increase as the consumption increase and the price would fall. This downward-sloping demand would be present in monopolistic competition and monopoly.

Answer and Explanation: 1


b. could increase its profit by increasing its output

The increase in profit is possible as the marginal cost is still low. At profit-maximizing level of output MR=MC. Here, MR>MC, hence there is a chance to still rise the cost and bring equal to MR to maximize profit. MC is upward sloping, hence, it suggests that MC can increase further.


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The Downward-Sloping Demand Curve & the Upward-Sloping Supply Curve

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Chapter 58 / Lesson 2
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Learn about supply and demand. Get to know the supply and demand curve. Study the law of supply and demand and see supply and demand examples.


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