A monopolist who is unable to price discriminate:
A) will never produce in the output range where marginal revenue is positive.
B) will never produce in the output range where marginal revenue is negative.
C) will never produce in the output range where demand is inelastic.
D) will be characterized by both (b) and (c).

Question

Quizplus · Accepted Answer

A monopolist who cannot price discriminate has to charge a single price for all units sold. In such a scenario, the monopolist faces a downward-sloping demand curve, and the optimal output level occurs where marginal revenue equals marginal cost. Now, if the demand is elastic, a small increase in price will lead to a relatively large decrease in the quantity demanded, causing marginal revenue to be negative. Thus, the monopolist will never produce in the output range where marginal revenue is negative. Similarly, if the demand is inelastic, a small increase in price will lead to a relatively small decrease in the quantity demanded, causing marginal revenue to be positive. Thus, the monopolist will never produce in the output range where demand is inelastic. Therefore, the correct choice is (D) - the monopolist who is unable to price discriminate will be characterized by both (b) and (c).

A Monopolist Who Is Unable to Price Discriminate