Table 15-18
A monopolist faces the following demand curve:
Suppose marginal cost is constant at $8 per unit.
-Refer to Table 15-18. The monopolist's marginal revenue is
A) always more than the price of its good.
B) always equal to the price of its good.
C) always less than the price of its good.
D) sometimes more and sometimes less than the price of its good.

Question

Table 15-18
A monopolist faces the following demand curve:
  Suppose marginal cost is constant at $8 per unit.
-Refer to Table 15-18. The monopolist's marginal revenue is
A) always more than the price of its good. 
B) always equal to the price of its good. 
C) always less than the price of its good. 
D) sometimes more and sometimes less than the price of its good.

Quizplus · Accepted Answer

The monopolist's marginal revenue is calculated as the change in total revenue resulting from a one-unit increase in output. In this case, the demand curve is downward sloping, which means that the marginal revenue is always less than the price of the good. The monopolist must lower the price on all units in order to sell one additional unit, resulting in a decrease in total revenue, which is reflected in the negative slope of the marginal revenue curve. Since marginal cost is constant at $8 per unit, the monopolist will produce the output level where marginal revenue equals marginal cost, which will be less than the output level that maximizes total revenue.

Table 15-18 A Monopolist Faces the Following Demand Curve