Question

If a pure monopolist is operating in a range of output where demand is elastic:

a. it cannot possibly be maximizing profits.

b. total revenue will be declining.

c. marginal revenue will be positive but declining.

d. marginal revenue will be positive and rising.

Answer 1

Answer: The correct answer is "c. marginal revenue will be positive but declining.".

Explanation: If a pure monopolist is operating in a range of output where demand is elastic: marginal revenue will be positive but declining.

To the extent that the monopolist's demand has a negative slope, the marginal income is always below it. And this is so because to sell more the monopolist has to lower the price, and this reduction in the price affects all the units that will sell.