Table 15-1
A monopolist faces the following demand curve:
Marginal cost is constant at $8 per unit.
-Refer to Table 15-1.When the price effect on revenue is greater than the output effect,marginal revenue is
A) positive.This occurs with the 3rd unit of output.
B) positive.This occurs with the 4th unit of output.
C) negative.This occurs with the 5th unit of output.
D) negative.This occurs with the 6th unit of output.

Question

Table 15-1
A monopolist faces the following demand curve:
  Marginal cost is constant at $8 per unit.
-Refer to Table 15-1.When the price effect on revenue is greater than the output effect,marginal revenue is
A) positive.This occurs with the 3rd unit of output. 
B) positive.This occurs with the 4th unit of output. 
C) negative.This occurs with the 5th unit of output. 
D) negative.This occurs with the 6th unit of output.

Quizplus · Accepted Answer

To determine where MR is positive or negative, we need to compare price effect and output effect. When price effect is greater, MR is positive. When output effect is greater, MR is negative. 
Using the formula MR = TRn - TRn-1, we can calculate the MR for each unit of output. 
For example, for the 2nd unit of output: MR = ($30 - $22) - ($22 - $14) = $4 
We can see that MR is positive for the first 5 units of output. However, when producing the 6th unit, the output effect (MC) becomes greater than the price effect, resulting in a negative MR. Therefore, the answer is D, negative MR occurs with the 6th unit of output.

Table 15-1 A Monopolist Faces the Following Demand Curve