In monopoly pricing, marginal revenue is typically

• A. Greater than price
• B. Equal to price
• C. Less than price
• D. Zero when output increases

Answer: (C)

In a monopoly, the marginal revenue is typically less than the price because lowering the price to sell one more unit applies to all units sold, not just the additional one. This downward-sloping demand means the revenue gained from the extra unit is offset by the revenue lost on existing units due to the price drop. The relationship MR = P + Q(dP/dQ) shows this clearly: dP/dQ is negative, so MR < P for any positive output. For example, if demand is P = 12 − Q, then MR = 12 − 2Q while price is P = 12 − Q, and MR is below price whenever Q > 0. Hence, marginal revenue is typically less than price.