A monopolist sets price at $10 and sells 100 units. The corresponding marginal revenue is $5 and marginal cost $3. What recommendation regarding price and quantity would you give this monopolist? Use a graph if you wish.

What will be an ideal response?


Since MR exceeds MC, recommend an increase in output. Greater sales will require a price reduction. So reduce P below $10 and increase Q above 100. See Figure 11-11.

Figure 11-11

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Economics

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