|Question||a. Consider a typical monopoly firm like that in Figure 13.3. If a monopolist finds a way to cut marginal costs, what will happen: Will it pass along some of the savings to the consumer in the form of lower prices, will it paradoxically raise prices to take advantage of these fatter profit margins, or will it keep the price steady?
b. Is this what happens when marginal costs fall in a competitive industry, or do competitive markets and monopolies respond differently to a fall in costs?