Question

For the monopolist, marginal revenue is __________.

Question 22 options:

	greater than price
	equal to price
	not a consideration in the firm's pricing
	less than average revenue since price must be lowered to sell additional units

Answer 1

For the monopolist, marginal revenue is less than average revenue since price must be lowered to sell additional units. The marginal revenue lies below the average revenue curve for a monopolist. If a monopoly sells at $5 per bottle of syrup snd the consumers demand 4 bottles at the price. However, to sell 5 bottles the monopolist has to bring down the price of the entire lot so that consumers would demand the increasing quantity. But by lowering the price it collects less revenue than it would have collected before with selling just 4 bottles. Hence, even with the revenue for an extra bottle its all over revenue reduces. Hence, marginal revenue is less than price.