Because the marginal revenue curve for a monopolist lies below its demand curve, the profit-maximizing price of the monopolist will be above marginal cost.

Question

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The monopolist sets the price above marginal cost because the marginal revenue curve, which guides its output decisions, lies below the demand curve due to the downward sloping demand. This results in a price that is higher than marginal cost at the profit-maximizing quantity.

Because the Marginal Revenue Curve for a Monopolist Lies Below