Suppose the table below describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity } \ \hline \$ 10 & 1 \ \hline \$ 9 & 2 \ \hline \$ 8 & 3 \ \hline \$ 7 & 4 \ \hline \$ 6 & 5 \ \hline \$ 5 & 6 \ \hline \$ 4 & 7 \ \hline \end{array}$$ The monopolist's marginal revenue from selling the 4^th unit of output is less than $7 because:

Question

Quizplus · Accepted Answer

The monopolist faces a downward-sloping demand curve, which means to sell more units of output, the monopolist must lower the price. However, when the monopolist lowers the price, it not only earns revenue from the additional unit of output but also loses revenue from the units previously sold at a higher price. In other words, the marginal revenue from selling an additional unit of output is less than the price of that unit.

The marginal revenue for the 4th unit can be calculated by finding the change in total revenue when selling the 4th unit. From the table, we see that the total revenue from selling 3 units is $21 ($10+$9+$2=$21), and the total revenue from selling 4 units is $25 ($10+$9+$8+$4=$25). Therefore, the marginal revenue from selling the 4th unit is $4 ($25-$21=$4). Since the demand curve is downward-sloping, the marginal revenue from selling any unit after the 4th unit will be less than $4.

Choice A is incorrect because we have no information about the monopolist's marginal cost.
Choice B is incorrect because the consumer price of the 4th unit is not relevant to the monopolist's marginal revenue.
Choice D is incorrect because the demand curve is downward-sloping, which means demand is not perfectly elastic.

Suppose the Table Below Describes the Demand for a Good