For a single-price (standard) monopolist, the firm’s marginal revenue curve lies ___________ the firm’s demand curve. This is because the monopolist cannot sell more output without ___________.Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer.aabove, moving up its supply curvebabove, reducing the price to all customerscbelow, price discriminating against some customersdbelow, reducing the price to all customers
Question
For a single-price (standard) monopolist, the firm’s marginal revenue curve lies ___________ the firm’s demand curve. This is because the monopolist cannot sell more output without ___________.Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer.aabove, moving up its supply curvebabove, reducing the price to all customerscbelow, price discriminating against some customersdbelow, reducing the price to all customers
Solution
The correct answer is d) below, reducing the price to all customers.
Here's why:
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For a single-price monopolist, the marginal revenue curve lies below the firm’s demand curve. This is because the marginal revenue (the additional revenue that a firm receives from selling one more unit of a good) is less than the price at which the firm sells the good.
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The reason for this is that in order to sell more output, the monopolist must reduce the price of its good. However, this price reduction applies to all units sold, not just the additional unit. This means that while the firm earns more revenue from the additional unit sold, it also earns less revenue from all other units due to the lower price.
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As a result, the increase in total revenue that the firm gets from selling one more unit (i.e., the marginal revenue) is less than the price at which the firm sells the good. Hence, the marginal revenue curve lies below the demand curve.
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This is not related to the firm's supply curve or price discrimination against some customers, so options a), b), and c) are incorrect.
Similar Questions
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