A monopolist sells 2,000 units for $20 each. The total cost of producing 2,000 units is $30,000. If the price falls to $19, the number of units sold increases to 2,100. The total cost of producing 2,100 units is $30,075. When the monopolist reduces its price from $20 to $19, its marginal revenue will
A) increase.
B) decrease.
C) stay the same.
D) be zero.

Question

Quizplus · Accepted Answer

Marginal revenue (MR) is the additional revenue that one more unit of a product will bring. Initially, the revenue is 2,000 units * $20 = $40,000. After the price drop, the revenue is 2,100 units * $19 = $39,900. The change in revenue is $39,900 - $40,000 = -$100, while the change in quantity sold is 2,100 - 2,000 = 100 units. Therefore, MR = ΔRevenue / ΔQuantity = -$100 / 100 = -$1, indicating that marginal revenue decreases when the price is reduced from $20 to $19.

A Monopolist Sells 2,000 Units for $20 Each