The correct answer is: A. Increase output, which will increase the firm’s positive economic profit.
A monopolist is a firm that is the only seller of a good or service in a market. A monopolist has a great deal of market power, and can therefore charge a price that is higher than the marginal cost of production. In this case, the monopolist is producing 14,000 units of output and charging Rs. 14 per unit. Its marginal revenue is Rs. 8, its marginal cost is Rs. 7 and rising, its average total cost is Rs. 10, and its average variable cost is Rs. 9.
The monopolist is currently making a positive economic profit, as its price is greater than its average total cost. However, the monopolist could make even more profit by increasing output. If the monopolist increased output to 15,000 units, its marginal revenue would still be Rs. 8, but its marginal cost would be Rs. 6. This means that the monopolist would make a profit of Rs. 2 per unit on the additional 1,000 units of output. In total, the monopolist would make a profit of Rs. 2,000 by increasing output to 15,000 units.
Therefore, the monopolist should increase output, which will increase the firm’s positive economic profit.
Here is a brief explanation of each option:
- Option A: Increase output, which will increase the firm’s positive economic profit. This is the correct answer, as explained above.
- Option B: Increase output, which will reduce the firm’s economic losses. This is not the correct answer, as the monopolist is already making a positive economic profit. Increasing output would not reduce the firm’s losses, but would actually increase its profits.
- Option C: Shut down, which will reduce the firm’s economic losses. This is not the correct answer, as the monopolist is already making a positive economic profit. Shutting down would cause the firm to lose all of its profits.
- Option D: Decrease output, which will increase the firm’s positive economic profit. This is not the correct answer, as the monopolist is already making a positive economic profit. Decreasing output would not increase the firm’s profits, but would actually decrease them.