Question

Say that a monopolist purchases an expensive new machine. in order to maximize profits in the short-run, the monopolist should _________ its price to offset the investment in the new machine

Answer 1

The answer is increase its price.

Investment transforms into higher costs of the products and given that in a monopoly the monopolist will not face competition, monopolist can take make decisions that affect the price in the short-run.

When the economy has many offerents, one firm cannot increase its price because the buyer will buy from other, so the only way to maximize profits is to produce more, decrease costs or enhancing the product (so the customers may want to pay more for a better product). In a monopoly the buyer hast not options and if the product is needed the buyer will have to pay the higher prices fixed by the monopolist.    

Answer 2

In such a case, the monopolist would increase its price to compensate for the heavy investment. There are 2 key determinants to this case. The first is the price and the second is the timeline. The firm wants to maximize the profits in a very short time. The thing to do is therefore to charge higher prices.