A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the
A)price of the seventh unit is $10.
B)price of the seventh unit is $11.
C)price of the seventh unit is greater than $12.
D)firm's demand curve is perfectly elastic.

Question

Quizplus · Accepted Answer

The price of the seventh unit must be $11 because the marginal revenue from selling the seventh unit is $5, which is less than the price of the sixth unit ($12). This indicates that to sell the seventh unit, the monopolist must lower the price of all units sold, including the previous six, to $11. This reduction in price for all units to sell one additional unit is why the marginal revenue ($5) is less than the price of the seventh unit ($11).

A Pure Monopolist Is Selling Six Units at a Price