A monopolist's marginal cost shifts up

A monopolist produces where marginal revenue equals marginal cost, then reads its price off the demand curve above that quantity.

If marginal cost shifts up while demand and marginal revenue stay put, the MC curve now crosses MR at a smaller quantity, because MR slopes down. So output falls. With a smaller quantity, the point on the demand curve directly above it is higher, so the price rises.

Price up and output down is the same direction a competitive market moves when costs rise, but the monopolist gets there by moving back along its own demand curve.

Each choice

• A. Both directions are reversed. Higher costs make each unit less worth producing, so the monopolist makes fewer units, not more, and sells them at a higher price.
• B. Output does fall, but a monopolist that sells fewer units moves up its downward-sloping demand curve, so the price it can charge rises.
• C. This treats the monopolist as if it passes the cost straight into price without changing output. Its profit-maximizing quantity depends on MC, so when MC moves, output moves too.
• D. Prices and output moving together in the same direction is a demand shift. A cost increase is on the supply side and pushes output down.
• E (correct). Higher MC meets the downward-sloping MR at a smaller quantity, and demand above that smaller quantity gives a higher price.