Samantha has a monopoly in the retail of ski-doos. She can sell five units per week at a price of $21,000 each, but to sell her full weekly capacity of six units, she must charge $20,000 each. The price effect of selling the sixth ski-doo is:
A)$20,000.
B)-$15,000.
C)-$5,000.
D)$25,000.

Question

Quizplus · Accepted Answer

The price effect of selling the sixth ski-doo involves not only the lower price of the sixth unit but also the reduced price on the initial five units. Originally, 5 units sold at $21,000 each would generate $105,000. Selling 6 units at $20,000 each generates $120,000. The difference in total revenue from the 5th to the 6th unit is $15,000 ($120,000 - $105,000), but since the 6th unit itself brings in $20,000, the price effect (the revenue lost on the initial units due to the price drop) is $5,000 ($20,000 - $15,000), hence a negative effect of -$5,000.

Samantha Has a Monopoly in the Retail of Ski-Doos