The following figure shows the demand curve faced by a monopolist.

-Refer to the figure above.What is the price effect of a price reduction from $6 to $4?
A) $300
B) $600
C) $900
D) $1,200

Question

The following figure shows the demand curve faced by a monopolist.
 
-Refer to the figure above.What is the price effect of a price reduction from $6 to $4?
A) $300 
B) $600 
C) $900 
D) $1,200

Quizplus · Accepted Answer

The price effect is given by the difference in quantity demanded multiplied by the price reduction. In this case, the difference in quantity demanded between the initial price of $6 and the reduced price of $4 is 300 units (from 500 to 800). Therefore, the price effect is $600 (300 units x $2 reduction in price). Option B is the only choice that matches this value.

The Following Figure Shows the Demand Curve Faced by a Monopolist