Figure 11-2
-Since a monopoly faces a downward-sloping demand curve,
A)then, as Adam Smith wrote, "the price of monopoly is upon every occasion the highest which can be got."
B)price always exceeds average revenue.
C)marginal revenue increases as output increases.
D)the monopolist is a price maker.

Question

Figure 11-2 
-Since a monopoly faces a downward-sloping demand curve,
A)then, as Adam Smith wrote, "the price of monopoly is upon every occasion the highest which can be got." 
B)price always exceeds average revenue. 
C)marginal revenue increases as output increases. 
D)the monopolist is a price maker.

Quizplus · Accepted Answer

A monopolist is a price maker because it has the power to set the price for its product. The downward-sloping demand curve implies that the monopolist can only sell more of its product by lowering the price, but it still exercises control over the price. Option A is a quote from Adam Smith that describes the tendency of monopolists to charge higher prices, but it is not a direct implication of the downward-sloping demand curve. Option B is incorrect because average revenue is equal to price under monopoly. Option C is also incorrect because marginal revenue may decrease as output increases under monopoly.

Figure 11-2 -Since a Monopoly Faces a Downward-Sloping Demand Curve