A single-price monopoly can sell 2 units for $8.50 per unit.In order to sell 3 units,the price must be $8.00 per unit.The marginal revenue from selling the third unit is
A) $24.00.
B) $8.50.
C) $7.00.
D) $6.50.
E) $17.00.

Question

Quizplus · Accepted Answer

A single price monopoly faces a downward sloping demand curve, and in order to increase its output, it must lower the price for all units sold.

Given that the monopoly can sell 2 units for $8.50 per unit, its total revenue is 2 x $8.50 = $17.00.

To sell 3 units, the monopoly must lower the price to $8.00 per unit. Its total revenue for selling 3 units is 3 x $8.00 = $24.00.

Therefore, the marginal revenue from selling the third unit is ($24.00 - $17.00) = $7.00.

A Single-Price Monopoly Can Sell 2 Units for $8