If the demand curve facing a monopoly was 1 unit at $7, 2 units at $6, 3 units at $5, 4 units at $4, and 5 units at $3, the marginal revenue from selling the third unit of output:
A)is $5.
B)is $4.
C)is $3
D)is $1
E)cannot be determined from the above information.

Question

Quizplus · Accepted Answer

The monopoly must lower the price of all units sold in order to sell an additional unit, resulting in a decrease in revenue gained from the already-sold units. The total revenue gained from selling three units is $15 ($7+$6+$2) while the total revenue gained from selling four units is $16 ($7+$6+$5+$4). Thus, the marginal revenue gained from selling the third unit must be $3 ($16-$15).

If the Demand Curve Facing a Monopoly Was 1 Unit