The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why
A) there are barriers to entry in pure monopoly.
B) a monopoly has a perfectly elastic demand curve.
C) marginal revenue is less than average revenue.
D) total revenues are greater than total costs at the profit maximizing level of output.

Question

Quizplus · Accepted Answer

The pure monopolist faces a downward sloping demand curve, and in order to sell more units, it must decrease the price on all units sold. This leads to a lower marginal revenue (the additional revenue gained from selling one more unit) than average revenue (total revenue divided by the quantity sold), which is why MR < AR for a pure monopolist. This is also why the monopolist's pricing strategy can be seen as discriminatory, as it charges different prices for different units sold. However, there are barriers to entry in pure monopoly that prevent competitors from entering the market, which is why the monopolist can still operate profitably despite the need to lower prices to sell more units. Total revenues are not necessarily greater than total costs at the profit maximizing level of output, as the monopolist is motivated by profits, not just revenue.

The Nondiscriminating Pure Monopolist Must Decrease Price on All Units