Multiple Choice QuestionA monopolist will never choose a price-quantity combination where price reductions cause:Multiple choice question.an increase in total revenuea decrease in marginal revenuemarginal revenue to risea decrease in total revenue
Question
Multiple Choice QuestionA monopolist will never choose a price-quantity combination where price reductions cause:Multiple choice question.an increase in total revenuea decrease in marginal revenuemarginal revenue to risea decrease in total revenue
Solution
The correct answer is: a decrease in marginal revenue.
Here's why:
A monopolist, like any other profit-maximizing firm, will always aim to produce at a level where marginal cost equals marginal revenue (MC=MR). This is the point at which they can maximize their profits.
If a price reduction causes a decrease in marginal revenue, it means that the additional revenue gained from selling one more unit of the product is less than the cost of producing that additional unit. This would lead to a decrease in profits, which is something a monopolist (or any firm) would want to avoid. Therefore, a monopolist will never choose a price-quantity combination where price reductions cause a decrease in marginal revenue.
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