At its current production level, a monopolist's marginal revenue is $20 and its marginal cost is $10. Which of the following is CORRECT?
a. The monopolist should produce and sell more output.
b. The monopolist should produce and sell less output.
c. The monopolist is maximizing its profits at its current level of output.
d. More information is required to decide if the firm needs to change its production.
Answer: a. The monopolist should produce and sell more output.
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Vertical contracts between manufacturers and retailers often aim to
a. Incentivize the retailers to undertake costly activities, which they otherwise may not realize the full benefits of on their own b. Serve as a "signal" of the manufacturer's belief of the likely success of his product c. Reimburse the retailer for the cost of managing an extended inventory d. All of the above
The law of increasing opportunity cost is based on the idea that
a. wages tend to increase with the level of employment b. interest rates tend to rise with increasing inflation c. labor costs for a typical firm are a large and growing proportion of total cost d. most resources are better suited to producing some goods than others e. the less of something we produce, the greater is the opportunity cost of producing still more