A small-town monopolist determines that lowering prices will bring in more customers. Following the price drop, however, the firm discovers that even though the number of customers increased as hoped, the firm’s total profit is falling. What could have gone wrong?
Correct Answer(s)
The new price fell below average total cost.
The new price and output level are at a point where MR < MC.
Incorrect Answer(s)
With the increase in customers, MR is now greater than MC.
As output increases, average total cost will always fall.