Since a monopoly has market power:
A) Its demand curve is upward sloping.
B) Its marginal revenue curve is below its demand curve.
C) It must hold price constant in order to sell an additional unit of output.
D) Its costs of production are minimal.

Question

Quizplus · Accepted Answer

A monopoly has the ability to restrict output and raise price above the competitive level, resulting in a downward sloping demand curve. However, its marginal revenue curve will always be below its demand curve because it must lower the price on all units sold in order to sell an additional unit, resulting in less revenue. Choices A and C are incorrect because a monopoly's demand curve is downward sloping and it can choose its price point in order to sell more units. Choice D is incorrect because as a profit-maximizing entity, a monopoly will strive to minimize costs, but it does not necessarily have minimal costs.

Since a Monopoly Has Market Power