Which statement best describes the effect(s) that occur when a monopoly firm reduces the price of its product?
A)The "price effect" causes total revenue to fall.
B)The "output effect" causes total revenue to rise.
C)The "revenue effect" causes total revenue to remain constant.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

When a monopoly reduces its price, the "price effect" causes total revenue to fall because the firm earns less on each unit sold. However, the "output effect" causes total revenue to rise because more units are sold. Both effects occur simultaneously.

Which Statement Best Describes the Effect(s) That Occur When a Monopoly