1. If a monopolist must lower the price on all units in order to sell an additio
ID: 1198471 • Letter: 1
Question
1. If a monopolist must lower the price on all units in order to sell an additional unit,
a. it is impossible for the monopolist to maximize profit
b. the monopolist will always lose profit when it increases quantity
c. the monopolist will always lose revenue when it increases quantity
d. price will always be greater than marginal revenue
e. price will always be less than marginal revenue
2. For a perfectly competitive firm,
a. P = MR at all output levels
b. P = MR at the profit-maximizing quantity only
c. P > MR at all output levels
d. P < MR at the profit-maximizing quantity only
e. P < MR at all output levels
Explanation / Answer
1.
It is “d”. Price will always be greater than marginal revenue.
Take an example to understand the matter:
Q
Price (P)
TR = P×Q
MR
1
10
10
---
2
9
18
(18 – 10 =) 8
3
8
24
(24 – 18 =) 6
4
7
28
(28 – 24 =) 4
5
6
30
(30 – 28 =) 2
In each case in the table price is higher than MR.
2.
It is “a”. P = MR at all output levels.
Take an example to understand the matter:
Q
Price (P)
TR = P×Q
MR
1
10
10
---
2
10
20
(20 – 10 =) 10
3
10
30
(30 – 20 =) 10
4
10
40
(40 – 30 =) 10
5
10
50
(50 – 40 =) 10
A perfectly competitive firm has equal price always. Therefore, its price becomes equal to MR at all quantity or output level as highlighted in the table.
Q
Price (P)
TR = P×Q
MR
1
10
10
---
2
9
18
(18 – 10 =) 8
3
8
24
(24 – 18 =) 6
4
7
28
(28 – 24 =) 4
5
6
30
(30 – 28 =) 2
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