Because a monopolist must lower its price in order to sell another unit of output,
A)marginal revenue is less than price.
B)long-term economic profits will be zero.
C)total revenue increases as price increases.
D)average revenue is less than price.

Question

Quizplus · Accepted Answer

The statement "a monopolist must lower its price in order to sell another unit of output" implies that the demand for the output is downward sloping. This means that in order to sell more units, the monopolist must lower its price. As a result, the additional revenue generated from selling an additional unit is less than the price of that unit, making marginal revenue less than price. Therefore, choice A is correct. B is incorrect because it is possible for a monopolist to earn economic profits in the long run, although not guaranteed. C is incorrect because as price increases for a monopolist, the quantity demanded decreases, resulting in a decrease in total revenue. D is incorrect because for a monopolist, average revenue is equal to price.

Because a Monopolist Must Lower Its Price in Order to Sell