Practice question · Multiple choice
A monopolist's marginal revenue is below its price. What does the gap represent in business terms?
Hints
- The monopolist faces the whole demand curve and charges one price. Ask what selling one more unit requires.
- What happens to the revenue on the units already being sold?
Show the answer
D. The revenue lost on every unit already selling higher
Why
Cutting the price to move one extra unit cuts it on every unit, and that inframarginal loss is exactly the wedge between price and marginal revenue. A competitive firm faces no such wedge because it can sell more at the going price, which is why MR = P there and MR < P here.
Practise Monopoly
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