A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy is
A)$7.00.
B)$−10.00.
C)$−13.00.
D)$21.

Question

Quizplus · Accepted Answer

Marginal revenue (MR) is the additional revenue that one more unit of the product brings to the firm. When the monopolist sells the 21st toy, the price of all toys sold drops from $8.00 to $7.00. Therefore, the revenue from selling 20 toys decreases by $20 (from $160 to $140), and the revenue from the 21st toy is $7.00. The change in total revenue from selling the 21st toy is $7 - $20 = -$13.00, making the marginal revenue of the 21st toy -$13.00.

A Monopolist Can Sell 20 Toys Per Day for $8