When a monopolist lowers its price from $80 to $70, the quantity it is able to sell increases from 100 to 150. The change in revenue associated with the output effect is equal to:
A) $3,500.
B) ?$3,500.
C) $500.
D) ?$500.
E) $4,000.

Question

Quizplus · Accepted Answer

The output effect is the change in revenue due to the change in quantity sold. In this case, the quantity sold increases from 100 to 150, so the output effect is equal to the change in revenue per unit multiplied by the change in quantity. The change in revenue per unit is $70 - $80 = -$10, and the change in quantity is 150 - 100 = 50, so the output effect is -$10 * 50 = -$500.

When a Monopolist Lowers Its Price from $80 to $70