If a monopolist increases the output of its product each week, which of the following is most likely to occur?

• A. The monopolist will be able to sell all additional units at the same price as before.
• B. Total revenue will always increase regardless of the price change.
• C. The monopolist will face increasing marginal costs and higher profits.
• D. The market price of the product will decrease due to the downward-sloping demand curve.

Answer: (D)

Verified step by step guidance

1. Understand the nature of a monopolist's demand curve: Unlike a perfectly competitive firm, a monopolist faces the entire market demand curve, which is typically downward sloping. This means that to sell more units, the monopolist must lower the price on all units sold.
2. Recognize that increasing output leads to a price decrease: Since the demand curve slopes downward, increasing the quantity supplied will cause the market price to fall. The monopolist cannot sell additional units at the same price as before without losing sales.
3. Consider the effect on total revenue: Total revenue is calculated as price multiplied by quantity (\(TR = P \times Q\)). Because price decreases as quantity increases, total revenue may increase or decrease depending on the elasticity of demand, so it is not guaranteed to always increase.
4. Analyze marginal cost and profits: While marginal cost may increase with output due to diminishing returns, higher output does not necessarily mean higher profits because the price is falling. The monopolist must balance the additional revenue from selling more units against the lower price and higher costs.
5. Conclude that the key outcome is the price decrease: The most likely and fundamental effect of increasing output for a monopolist is a decrease in the market price due to the downward-sloping demand curve.