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CA Foundation · Business Economics · Price Determination in Different Markets

A monopolist's marginal revenue curve lies below its demand curve at every positive level of output because:

Marginal revenue is below demand (price) because a monopolist must cut the price on every unit to sell one more. The revenue from the extra unit is the new price minus the revenue lost on earlier units, so MR is always less than price.

  1. ATo sell an additional unit, the monopolist must lower the price on all units sold, so the revenue gained is less than the new priceCorrect
  2. BThe monopolist's marginal cost always exceeds its average cost
  3. CThe monopolist faces a perfectly elastic demand curve
  4. DTotal revenue always falls as output rises under monopoly

Explanation

A monopolist faces a downward-sloping demand curve. To sell one more unit, the price must fall on all units, so the extra revenue is the new price minus the loss on earlier units. Hence MR is less than price. The other options are unrelated to this reason or wrong; for instance, demand under monopoly is not perfectly elastic.

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