For a monopoly, a negative marginal revenue implies that:
A)the price effect is larger than the quantity effect.
B)total revenues are increasing.
C)the demand is price elastic.
D)the quantity effect is larger than the price effect.

Question

Quizplus · Accepted Answer

A negative marginal revenue for a monopoly implies that the price effect (the revenue lost by lowering the price on all units sold) is larger than the quantity effect (the revenue gained by selling additional units). This situation occurs because, in a monopolistic market, the firm faces a downward-sloping demand curve, and lowering the price to sell one more unit means lowering the price for all units sold, which can lead to a decrease in total revenue if the price effect outweighs the quantity effect.

For a Monopoly, a Negative Marginal Revenue Implies That