Why is the price paid by consumers typically above the marginal cost in a monopoly at equilibrium?

• A. Output is higher than under perfect competition.
• B. Price is above marginal cost because marginal revenue is below the demand curve.
• C. Price below marginal cost due to rising marginal costs.
• D. Marginal revenue equals price at the equilibrium.

Answer: (B)

In a monopoly, the price paid by consumers typically exceeds the marginal cost because the firm sets output where marginal revenue equals marginal cost, while facing a downward-sloping demand. To sell an extra unit, the monopolist must lower the price on all units sold, so the additional revenue from that unit (marginal revenue) is less than the price at which that unit is sold. Since the equilibrium condition is MR = MC, this implies MC = MR < Price, so the price on the demand curve ends up above marginal cost. This contrast with perfect competition, where price equals marginal cost because firms are price takers.