If a monopoly firm reduced the price of its product, which of following must have been true? A)MR MC B)MR AR D)MC AR

Question

If a monopoly firm reduced the price of its product, which of following must have been true?
A)MR > MC
B)MR < MC
C)MR > AR
D)MC > AR

Quizplus · Accepted Answer

A monopoly firm will reduce the price of its product if and only if marginal revenue (MR) is greater than marginal cost (MC). This is because the firm will continue to increase its profits by producing and selling additional units of the good until MR=MC. Therefore, option A is the correct choice. Option B is incorrect because if MR is less than MC, the firm would decrease its production or increase the price to increase profits. Option C is incorrect because MR can be greater than AR (average revenue) even if the firm does not reduce the price. Option D is incorrect because MC (marginal cost) is typically lower than AR (average revenue) for a monopoly firm, so this condition cannot be met.

If a Monopoly Firm Reduced the Price of Its Product