For a monopolist, an increase in output sold causes marginal revenue to be negative when
A)the output effect is greater than the price effect.
B)the price effect is greater than the output effect.
C)the output effect is equal to the price effect.
D)consumer surplus is negative.

Question

Quizplus · Accepted Answer

For a monopolist, marginal revenue becomes negative when the price effect (reducing the price of all units sold to sell one more unit) outweighs the output effect (the revenue gained from selling one additional unit). This is because the monopolist must lower the price on all units sold to sell an additional unit, which can lead to a decrease in total revenue if the price cut is significant compared to the revenue from the additional unit sold.

For a Monopolist, an Increase in Output Sold Causes Marginal