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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Which statement about a monopolist's demand and revenue is correct?

For a monopolist, marginal revenue is lower than price. The firm faces a downward-sloping market demand curve, so selling one more unit requires cutting the price on all units sold, and this loss on earlier units reduces the additional revenue gained.

  1. AMarginal revenue is equal to price at every output
  2. BMarginal revenue is below price because lowering price to sell more also lowers the price on earlier unitsCorrect
  3. CMarginal revenue is above price when output rises
  4. DThe firm faces a perfectly horizontal demand curve

Explanation

A monopolist faces the downward-sloping market demand curve. To sell an extra unit it must cut the price on all units, so the gain from the extra unit is partly offset by the loss on earlier units, making MR less than price. MR equal to price holds only under perfect competition.

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