When the marginal revenue curve is drawn for a monopolist, the curve
A)is above the monopolist's demand curve initially and then falls below the demand curve.
B)is above the monopolist's demand curve for all output levels.
C)is equal to the monopolist's demand curve at all output levels.
D)is below the monopolist's demand curve, beyond the initial unit produced.

Question

When the marginal revenue curve is drawn for a monopolist, the curve
A)​is above the monopolist's demand curve initially and then falls below the demand curve.
B)​is above the monopolist's demand curve for all output levels.
C)is equal to the monopolist's demand curve at all output levels.
D)​is below the monopolist's demand curve, beyond the initial unit produced.

Quizplus · Accepted Answer

The marginal revenue curve for a monopolist is always below the demand curve. This is because the monopolist has market power, which allows them to charge a higher price than a perfectly competitive market would. As the monopolist increases production, they must lower the price to sell additional units, resulting in a downward-sloping marginal revenue curve that is below the demand curve. Beyond the initial unit produced, the marginal revenue curve will be even lower, as the price reduction necessary to sell additional units becomes greater.

When the Marginal Revenue Curve Is Drawn for a Monopolist