Chapter 11R, Problem 19MCQ

To determine

The correct option for given situation where monopolist’s marginal revenue is positive.

Answer to Problem 19MCQ

Option a is correct answer.

Explanation of Solution

Explanation for correct option:

a.

In monopolist firm, if marginal revenue is positive then it implies that the demand is elastic whereas if marginal revenue is negative then it implies inelastic demand. If demand is elastic then quantity effect outweighs the price effect because slight change in price will result in greater change in quantity demand. Therefore, option a is correct.

Explanation for incorrect options:

b.

Positive marginal revenue implies that demand is elastic which means the percentage change in price is lower than the percentage change in quantity. Therefore, option b is incorrect.

c.

As the prices are decreased, the marginal revenue decreases which also decline the total average revenue. Monopolist firms need to lower their prices to sell more quantity in the market. Therefore, option c is incorrect.

d.

Total revenue is not declining at increasing rate as quantity of selling goods is increased. Therefore, option d is incorrect.

e.

In monopoly competition firms, if prices are decreased then demand increases infinitely as demand is elastic when MR is positive. This will help monopolist firms to compensate the losses. Therefore, option e is incorrect.

Economics Concept Introduction

Marginal revenue: MR refers to the revenue that is generated by the firm by selling one additional unit in the market.

Demand curve: Demand curve refers to the relationship between price and the output at which consumers are ready to purchase.