Assume that a monopolist faces a linear demand curve. If the firm is operating at an output level where marginal revenue is positive, the firm
A)has maximized total revenues.
B)could raise revenues by raising prices.
C)can always increase profits by lowering its price.
D)is operating on the elastic portion of its demand curve.

Question

Quizplus · Accepted Answer

When a monopolist is operating at a point where marginal revenue (MR) is positive, it means that the firm is on the elastic portion of its demand curve. In this region, lowering the price will lead to an increase in total revenue because the percentage increase in quantity demanded is greater than the percentage decrease in price. This does not necessarily mean that the firm has maximized total revenues or profits, as those conditions are met when MR equals zero and marginal cost (MC) respectively.

Assume That a Monopolist Faces a Linear Demand Curve