For a monopoly, the marginal revenue is below the demand curve because:

• A. marginal cost always exceeds marginal revenue in monopoly
• B. the monopolist can set any price without affecting quantity demanded
• C. the monopolist must lower the price on all units sold to sell additional units
• D. the monopolist faces a perfectly elastic demand curve

Answer: (C)

Verified step by step guidance

1. Understand the relationship between the demand curve and marginal revenue (MR) for a monopolist. The demand curve shows the price consumers are willing to pay for each quantity, while MR shows the additional revenue from selling one more unit.
2. Recall that for a monopolist, the demand curve is downward sloping, meaning to sell more units, the monopolist must lower the price not only on the additional unit but on all previous units sold.
3. Recognize that because the price must be lowered on all units to increase quantity sold, the marginal revenue gained from selling one more unit is less than the price at which that unit is sold, causing MR to lie below the demand curve.
4. Note that this contrasts with perfect competition, where firms are price takers and marginal revenue equals the price (demand curve is perfectly elastic).
5. Conclude that the correct explanation is that the monopolist must lower the price on all units sold to sell additional units, which causes marginal revenue to be less than the price (demand curve).