An increase in fixed costs for a monopoly will do which of the following?

• A. Decrease the monopoly's profit-maximizing quantity
• B. Increase the monopoly's profit-maximizing price
• C. Have no effect on the monopoly's profit-maximizing price or quantity
• D. Shift the demand curve for the monopoly's product to the left

Answer: (C)

Verified step by step guidance

1. Recall that a monopoly maximizes profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). This determines the profit-maximizing quantity and price.
2. Understand that fixed costs do not affect marginal cost because fixed costs are constant regardless of output level, while marginal cost depends on variable costs that change with output.
3. Since marginal cost remains unchanged, the intersection point of MR and MC does not shift, meaning the profit-maximizing quantity stays the same.
4. Because the quantity does not change, the monopoly's price, which is determined by the demand curve at that quantity, also remains unchanged.
5. Recognize that fixed costs affect total cost and profit levels but do not shift the demand curve or change the marginal cost, so they do not influence the monopoly's price or quantity decisions.