Both monopolists and cartel members will find that a drop in price leads to:
A)a quantity effect that negatively affects total revenue.
B)a price effect that negatively affects total revenue.
C)a quantity effect that has no effect on total revenue.
D)neither a price nor a quantity effect occurring in such markets.

Question

Quizplus · Accepted Answer

Both a monopolist and a member of a cartel have market power, which means they can influence the price and quantity of goods sold. When the price drops, the quantity effect may lead to an increase in sales, but the price effect of reduced revenue from each sale can outweigh this and cause the total revenue to decrease. Therefore, a drop in price leads to a price effect that negatively affects total revenue.

Both Monopolists and Cartel Members Will Find That a Drop