Read each question and choose the best answer.

Question

What might happen if a monopolist increased output of its product each week?
A. The price of the good would eventually fall and so would revenue.
B. The price of the good would eventually fall and revenue would increase.
C. The price of the good would not change but revenue would increase.
D. The price of the good would rise but revenue would decrease.

Answer 1

The best answer is:

A. The price of the good would eventually fall and so would revenue.

In a monopolistic market, if a monopolist increases output, the law of demand indicates that the price will decrease since there is a larger supply of the goods available. As the price falls, the revenue will also decrease after a certain point because the additional revenue gained from selling more units will not compensate for the loss in revenue from lowering the price on all units sold.