Question

The demand curve for a monopoly is:

Select one:

a. none of the above.

b. the MR curve above the AVC curve.

c. the MR curve above the horizontal axis.

d. the entire MR curve.

Answer 1

A monopolist faces a downward sloping demand curve. A typical linear demand curve of a monopolist is given by :

P = a - bQ where b > 0, P = Price and Q = quantity

MR = Marginal Revenue = d(TR)/dQ, TR = Total Revenue = P*Q = (a - bQ)*Q

=> MR = d(TR)/dQ = a - 2bQ and as discussed above b > 0

=> P = a - bQ > a - 2bQ = MR => P > MR

Thus, demand curve is above the MR curve for a monopolist.

So, all of the options are incorrect.

Hence, the correct answer is (a) none of the above.