FIGURE 10- 4 Suppose a Monopolist Faces the Demand Curve

question 76

Multiple Choice

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

-A single- price monopolist is currently producing an output level where P = $320,MR = $260,ATC = $280,and MC = $200.In order to maximize profits,this monopolist should

• A)decrease production and increase price.
• B)increase production and reduce price
• C)There is insufficient information to make a recommendation.
• D)shut down.
• E)not change the output level because the firm is currently at the profit- maximizing output level.

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Definitions:

Production Possibilities

Different combinations of goods and services that an economy can produce efficiently with its available resources and technology.

Diminishing Returns

The principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.

Marginal Product

The increase in output resulting from a one-unit increase in the input of a production factor, holding all other inputs constant.

Marginal Product

The additional output resulting from one more unit of a given input, holding all other inputs constant.