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a. A monopolist finds that at its current level of output the marginal cost of production...

a. A monopolist finds that at its current level of output the marginal cost of production is $9, the average total cost is $9.95,the average variable cost is $9.75 and its marginal revenue is $9.45. What would you recommend that the monopolist do to increase profits? One word answer is not enough. Explain.

b.  A monopolist determines that at the current level of output the marginal revenue is $9.00 and its marginal cost is $10. What should the monopolist do to increase profits? One word answer is not enough. Explain.

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Answer #1

1.The monopolist should increase production.As production rises MR falls and MC rises.Production should occur until the point at which MR=MC is achieved.

2.In theis case the MC>MR.If the monopolist reduces production then MC falls and MR rises.

Monopolist should reduce production.

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