Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each.In order to increase sales to 21 driveways,the contractor must lower the price of driveways to $9,500.The marginal revenue of the 21st driveway is
A)$500.
B)$199,500.
C)-$500.
D)$9,500.

Question

Quizplus · Accepted Answer

Marginal revenue is the additional revenue generated by selling one additional unit of output. In this case, the contractor is a monopoly, which means that they are the sole seller of this product in the market. Therefore, in order to sell an additional driveway, they must lower the price for all 21 driveways sold. The total revenue for selling 20 driveways at $10,000 each is $200,000. The total revenue for selling 21 driveways at $9,500 each is $199,500. The marginal revenue of the 21st driveway is the difference between these two total revenues: $199,500 - $200,000 = -$500. This means that by selling the 21st driveway, the monopoly contractor experiences a decrease in total revenue by $500.

Suppose a Monopoly Concrete Contractor Builds 20 Driveways Per Month