A pure monopolist is selling 10 units at a price of $12. If the marginal revenue of the 11th unit is $1, then the price of the 11th unit is
A) $10.
B) $11.
C) greater than $12.
D) $12.

Question

Quizplus · Accepted Answer

A pure monopolist sets its output level at the point where marginal revenue (MR) equals marginal cost (MC). Since the MR of the 11th unit is $1, the monopolist's MC equals $1 at this point. Thus, the monopolist would produce and sell the 11th unit if the price it can charge is greater than or equal to $1. However, if the monopolist charges a price greater than $12 for the 11th unit, it will not sell any units since consumers can buy at the lower price of $12. Therefore, the highest price the monopolist can charge for the 11th unit and still sell it is $11, so the answer is B.

A Pure Monopolist Is Selling 10 Units at a Price