Why is the marginal revenue of a monopolist charging a uniform price lower than the price level?

Question

BlackTom AI · Accepted Answer

Question restatement: Why is the marginal revenue of a monopolist charging a uniform price lower than the price level?

Option A: 'Because the monopolist sells each unit at a different price, so marginal revenue reflects only the price of the last unit sold.' This describes a price-discrimination or perfect price differentiation scenario, where each additional unit could be sold at a different price. In a uniform-price monopoly, all units are sold at the same price, so MR is not simply the price of the last unit. The statement incorrectly attributes MR to per-unit price variation that does not exist under a single, uniform price.

Option B: 'Because increasing quantity increases revenue, but it comes at the expense of having to charge a lower price to all units sold.' This captures the core idea: to sell more units when demand is downward sloping, the monopolist must lower the price on all units, which lowers total revenue added by the new quantity and makes marginal revenue fall below the current price. This is the standard explanation for MR < price in a uniform-price monopoly.

Option C: 'Because the monopolist cannot decrease quantity sold without decreasing the price.' This statement is misleading. In general, the monopolist can choose to reduce output by raising price or by selling fewer units, but the linkage is not that output decrease necessarily requires a price decrease; it depends on the demand curve. The option incorrectly generalizes a constraint and does not address the MR vs price relationship.

Option D: 'Because marginal cost is always higher than marginal revenue for a monopolist, which forces marginal revenue to fall below the price.' This mixes the relationship between marginal cost and marginal revenue. MR can be below price due to the downward-sloping demand, but it is not a universal rule that MC must be higher than MR, nor does that alone explain why MR < price. The statement introduces MC as the controlling factor without tying it to the price effect of lowering the price to sell more units, making it misleading as a general explanation.

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Why is the marginal revenue of a monopolist charging a uniform price lower than the price level?

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