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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

If a monopoly’s fixed costs increase, its price will _______ and its profit will ________.

a. increase, decrease

b. decrease, increase

c. increase, stay the same

d. stay the same, decrease

To determine
The relationship between fixed cost and profit.

Explanation

Option (d):

Under monopoly, the fixed cost has no effect on the price and the quantity is determined by the marginal revenue, which is equal to marginal cost. However, due to an increase in the total cost, it affects the profit. Thus, option ‘d’ is correct.

Option (a):

The change in fixed cost does not affect the price. Thus, option ‘a’ is incorrect...

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