If a profit-maximizing monopolist faces a downward-sloping market demand curve, itsGroup of answer choicesaverage revenue is less than the price of the product.marginal revenue is greater than the price of the product.marginal revenue is less than the price of the product.average revenue is less than marginal revenue.
Question
If a profit-maximizing monopolist faces a downward-sloping market demand curve, itsGroup of answer choicesaverage revenue is less than the price of the product.marginal revenue is greater than the price of the product.marginal revenue is less than the price of the product.average revenue is less than marginal revenue.
Solution
The correct answer is: marginal revenue is less than the price of the product.
Here's why:
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A monopolist faces a downward-sloping demand curve, which means that in order to sell more units of a product, the price must be lowered.
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Average revenue is simply the price of the product (since average revenue is total revenue divided by the quantity sold, and total revenue is price times quantity).
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Marginal revenue is the additional revenue that an additional unit of a product will bring. Because of the downward-sloping demand curve, the monopolist must lower the price of all units sold in order to sell an additional unit. This means that the additional revenue from selling one more unit (marginal revenue) is less than the price of the product.
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Therefore, marginal revenue is less than the price of the product.
Similar Questions
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