Figure 7.1
-Figure 7.1 shows a monopolist's demand curve. If the monopolist increases output from four to five units, what is its marginal revenue?
A) $16
B) $15
C) $3
D) -$1

Question

Figure 7.1
-Figure 7.1 shows a monopolist's demand curve. If the monopolist increases output from four to five units, what is its marginal revenue?
A) $16 
B) $15 
C) $3 
D) -$1

Quizplus · Accepted Answer

Marginal revenue is the additional revenue that a firm gains when it sells an additional unit of output. In the case of a monopolist, the marginal revenue is not simply the price of the additional unit because increasing output also typically involves lowering the price of all units sold to sell the additional unit. This can lead to a situation where the marginal revenue is negative, meaning that the additional revenue generated by selling one more unit is less than the loss in revenue from having to lower the price on all units sold. Therefore, if the monopolist's marginal revenue for increasing output from four to five units is negative, it indicates that the revenue lost from lowering the price on all units exceeds the revenue gained from selling the additional unit, resulting in a marginal revenue of -$1.

Figure 7.1 -Figure 7.1 Shows a Monopolist's Demand Curve. If the Monopolist