37. A monopolist is currently producing 10,000 units of output at a price of $50

Question

37. A monopolist is currently producing 10,000 units of output at a price of $50 per unit. At that level of output, marginal cost is equal to $50 and profit is equal to $1,000. What should this firm do, if anything, to maximize profit? Increase output b.Decrease output (but not shut down) C. Shut down Decrease price 38. A firm in a monopolistically competitive market is currently producing 10,000 units of output at a price of $50 per unit. At that level of output, marginal cost is equal to $50 and profit is equal to $1,000. What should this firm do, if anything, to maximize profit? Increase output b.Decrease output (but not shut down) Shut down Decrease price

Explanation / Answer

37. The correct answer is: b)

Reason: At a monopoly profit maximizing equilibrium,

Marginal Revenue = Marginal Cost

The firm is currently producing at the output level where

Price = Marginal Cost = 50.

So, the firm should decrease production to maximize profit untill when MR = MC.

38. The correct answer is: b)

Reason: at a monopolistically competitive equilibrium,

MR = MC. For a monopolistically competitive market, price is more than the Marginal revenue and thus to attain equilibrium, Output should be decreased.

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