Question

When a monopolist increases sales by one unit,

A. it gains some marginal revenue from selling that extra unit.
B. more low priced sales cause negative marginal revenues.
C. every other unit must now be sold at a lower price.
D. it loses some marginal revenue and all of the above.

Answer 1

When a monopolist increases sales by one unit, it gains some marginal revenue from selling that extra unit, but also loses some marginal revenue because it must now sell every other unit at a lower price. In other words, marginal revenue is negative.

Step-by-step explanation:

When a monopolist increases sales by one unit, it gains some marginal revenue from selling that extra unit, but also loses some marginal revenue because it must now sell every other unit at a lower price. As the quantity sold becomes higher, at some point the drop in price is proportionally more than the increase in greater quantity of sales, causing a situation where more sales bring in less revenue. In other words, marginal revenue is negative.