For a monopoly, the demand curve shows
A)average revenue at each level of output.
B)average cost at each level of output.
C)marginal revenue at each level of output.
D)marginal cost at each level of output.
E)profits at each level of output.

Question

Quizplus · Accepted Answer

The demand curve for a monopoly shows the average revenue at each level of output because the monopolist is the only producer in the market and therefore has the power to set prices. The monopolist will choose the quantity of output where marginal revenue equals marginal cost, but the price that consumers are willing to pay for that output will be determined by the demand curve. Therefore, the demand curve is key to understanding the pricing behavior of a monopoly. Marginal revenue and profits can also be derived from the demand curve, but it is not the primary purpose of the curve.

For a Monopoly, the Demand Curve Shows