Consider an industry which comprises a monopolist. The monopolist does
not practice price-discrimination. The firm uses two variable factors
of production, labour and capital and is a price-taker in both factor
markets. Suppose the firm is producing its profit-maximising output
and then there is an increase in the rate of interest. Explain
carefully how this will impact on the monopoly price and output, the
monopolist?s profit and the usage of both labour and capital.

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Clarification of Question by montyhall-ga on 18 Jan 2006 14:29 PST

Main points that should be covered are all that are needed. And advice
on diagrams that would be relevant would also be appreciated.