If a monopolist could sell 5 units at $6 and 6 units at $5: A) marginal revenue for the 6^th unit is $5. B) marginal revenue for the 6^th unit is zero. C) demand is unit elastic over that range of prices. D) both (b) and (c) are true.

Question

Quizplus · Accepted Answer

The marginal revenue for the 6^th unit is zero because adding another unit reduces the price of all units to $5, therefore the total revenue from selling the 6th unit is $5 (6 units sold at $5) which is the same as selling 5 units at $6. Demand is unit elastic because a small price decrease ($1) results in an equal increase in the quantity sold (1 unit). Therefore, the percentage change in quantity is equal to the percentage change in price, resulting in an elastic demand.

If a Monopolist Could Sell 5 Units at $6 and 6