Why is MR

Question

Why is MR < P for a monopolist?
A) The monopolist restricts output, and marginal cost rises as more output is produced.
B) The monopolist is constrained by market demand, so in order to sell even one more unit of output, it must lower the price.
C) The demand for the monopolist's product is price elastic.
D) The monopolist has large economies of scale, so its average total cost is constantly falling, and it can still profit at a lower price.

Quizplus · Accepted Answer

The monopolist faces a downward-sloping demand curve, meaning to sell additional units, the price must be lowered not just for the additional units but for all units sold. This causes marginal revenue (MR) to be less than the price (P) because the revenue gained from selling one more unit is offset by the revenue lost from having to lower the price on all units sold.

Why Is MR < P for a Monopolist