When a monopoly increases its output and sales,

a. both the output effect and the price effect work to increase total revenue.

b. the output effect works to decrease total revenue and the price effect works to increase total revenue.

c. both the output effect and the price effect work to decrease total revenue.

d. the output effect works to increase total revenue and the price effect works to decrease total revenue.

Question

Business

Scooter

27 June, 16:09

When a monopoly increases its output and sales,

a. both the output effect and the price effect work to increase total revenue.

b. the output effect works to decrease total revenue and the price effect works to increase total revenue.

c. both the output effect and the price effect work to decrease total revenue.

d. the output effect works to increase total revenue and the price effect works to decrease total revenue.

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Answers (1)

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Jakob Schwartz · Answer 1

The correct answer is letter "D": the output effect works to increase total revenue and the price effect works to decrease total revenue.

Explanation:

The output effect in a monopoly takes place when the price of input will raise the production costs of a business and reduce its output level and vice-versa. The price effect refers to the impact an activity has on the value of something. The price effect consists of the effect of substitution and the effect of profits. While the output effect has the purpose of increasing revenue, the price effect works towards decreasing it.