CA Foundation · Business Economics · Price Determination in Different Markets
For a single-price monopolist facing a downward-sloping straight-line demand curve, which of the following statements about marginal revenue (MR) is correct?
MR lies below the demand curve at every positive output for a single-price monopolist, because selling one more unit requires lowering the price on all units sold. MR equals price only under perfect competition, where the firm is a price taker.
- AMR is equal to price at every level of output
- BMR lies below the demand curve at every positive output levelCorrect
- CMR lies above the demand curve at higher output levels
- DMR is always constant irrespective of output
Explanation
To sell an extra unit, a single-price monopolist must cut the price on all units, so MR is less than price. Hence the MR curve lies below the demand (AR) curve at every positive output. MR equals price only for a perfectly competitive firm, where demand is horizontal.
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