Suppose you observe that as output in the market increases, total revenue for the market declines. This would imply that
A)a monopoly would be unable to exercise market power in this market.
B)the demand for this product is not completely inelastic.
C)the market is not a monopoly.
D)any type of firm in this market would be a price-taker.
E)firms in this market have strong market power.

Question

Quizplus · Accepted Answer

If total revenue declines with an increase in output, it indicates that demand for the product is not completely inelastic. In a perfectly inelastic demand, an increase in output would not affect the total revenue. Therefore, the market must have some level of price elasticity, and firms would have to lower their prices to sell more, leading to a decline in total revenue.

Suppose You Observe That as Output in the Market Increases