Question

Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms.

Answer 1

(ii) When a monopoly firm sells an additional unit of output, its revenue increase by an amount less than the price

Step-by-step explanation:

The monopoly is the only producer of a product, the corresponding price for its output is taken from the demand curve of the market.

And the demand curve is downward sloping, meaning to sell an additional unit, it has to lower price on all units sold.

That loss from lower price is the reason its revenue increase by an amount less than the price of the additional unit.