The difference between a monopolist's marginal expenditure and that of a price taker is
A) The marginal cost of the input
B) The input expansion effect
C) The price increase effect
D) The price decrease effect

Question

Quizplus · Accepted Answer

The difference between a monopolist's marginal expenditure and that of a price taker is due to the price increase effect. A monopolist faces a downward sloping demand curve and hence to sell more units, they need to lower the price, which leads to a decrease in revenue from the sale of other units. Thus, a monopolist's marginal expenditure is higher than that of a price taker. This is referred to as the price increase effect.

The Difference Between a Monopolist's Marginal Expenditure and That of a Price