Question

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. It was maximizing its profit when its output was 100,000 kilowatt hours. After the nuclear accident in Japan it was forced to install new equipment for backup cooling of its nuclear plants. Based on this information, its level of output in the short run should:

Answer 1

Answer:

Its level of output in the short run should not change

Explanation:

For a monopoly, maximization of profit is only possible if marginal cost is equal to marginal revenue. The new equipment will only change the fixed cost and not the marginal cost, thus there will be no change in the level of output.