A monopolist who does NOT practice price discrimination should never produce in

Question

A monopolist who does NOT practice price discrimination should never produce in the:

A) Elastic portion of its demand curve because it can increase total revenue and reduce costs by lowering price.

B) Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.

C) Inelastic portion of its demand curve because it can increase total revenue by more than it increases total cost by reducing the price.

D) Segment of its demand curve where the price elasticity of demand is greater than one.

(please, explain)

Explanation / Answer

B. Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.

A monopoly would never produce in the inelastic part of its demand curve. The firm can always decrease the production so that it can decrease total costs (the variable costs will reduce with lower production), charge higher price (as it is a monopoly) and increase total revenue.

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