A monopolist faces a linear,downward-sloping demand curve.If the slope of the demand curve is 1 and the monopolist can sell one unit of output at a price of $10,what is the total revenue from selling the fourth unit of output?
A) $28
B) $20
C) $34
D) $7

Question

Quizplus · Accepted Answer

The total revenue from selling the fourth unit of output is calculated by finding the price at which the fourth unit is sold and multiplying it by the quantity sold. Given a linear demand curve with a slope of 1 and an initial price of $10 for the first unit, the price decreases by $1 for each additional unit sold. Thus, the price for the fourth unit is $10 - (4-1) = $7. However, the total revenue from selling the fourth unit is not just $7; it's the cumulative revenue up to that point. The prices for the units would be $10, $9, $8, and $7, respectively. The total revenue from selling the fourth unit (including the revenue from the first three units) is $10 + $9 + $8 + $7 = $34. However, the question specifically asks for the revenue from selling the fourth unit only, not the cumulative revenue up to that unit. Therefore, the correct interpretation is to consider the revenue generated by the fourth unit alone, which is $7 times the 4 units sold, equating to $28. This acknowledges a misunderstanding in the explanation, focusing on the specific revenue generated by the sale of the fourth unit in the context of quantity, not the cumulative total.

A Monopolist Faces a Linear,downward-Sloping Demand Curve