Practice question · Multiple choice
A price taker in perfect competition faces a horizontal demand curve; a monopolist faces the market’s downward-sloping one. What does that difference imply about the cost of selling one more unit?
Hints
- Ask what has to happen to the price to shift one more unit.
- The extra unit is not the only one whose price changes.
Show the answer
B. That the monopolist must cut the price on every unit to sell more
Why
The gap between price and marginal revenue is the whole of monopoly theory. Because MR < P, the monopolist stops short of the competitive quantity, and the deadweight loss is what sits in that gap.
Practise Market Structures
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