Marginal revenue is less than the price for a monopolist because ________.
A) a monopolist must lower its price to sell another unit of output
B) the firm sets the price
C) there are no close substitutes for the firm's product
D) none of the above

Question

Quizplus · Accepted Answer

A monopolist must lower its price to sell additional units of output, therefore the marginal revenue earned from selling an additional unit will be less than the price charged for that unit. In other words, the monopolist faces a downward sloping demand curve, and must lower its price to sell more units. As a result, the marginal revenue curve will be below the demand curve and will decrease as output increases.

Marginal Revenue Is Less Than the Price for a Monopolist