How does marginal revenue compare to price for a seller with market power?
A)Marginal revenue is equal to price.
B)Marginal revenue is always higher than price.
C)Beyond the first unit sold, marginal revenue is below price.
D)Beyond the first unit sold, marginal revenue is above price.

Question

Quizplus · Accepted Answer

For a seller with market power, the seller can influence the market price. This means that the seller can set a price that is higher than the cost of producing an additional unit. As a result, the seller faces a downward-sloping demand curve, since each additional unit sold brings in less revenue due to the lower price. This means that beyond the first unit sold, marginal revenue is below price. Therefore, the correct choice is C.

How Does Marginal Revenue Compare to Price for a Seller