Refer to the graphs of the demand (d) and marginal revenue (mr) curves for a monopolist. Which of the following statements is true?

• A. The marginal revenue curve is identical to the demand curve for a monopolist.
• B. The marginal revenue curve lies below the demand curve at all positive quantities.
• C. The marginal revenue curve lies above the demand curve at all positive quantities.
• D. The marginal revenue curve is always horizontal for a monopolist.

Answer: (B)

Verified step by step guidance

1. Recall that for a monopolist, the demand curve represents the price consumers are willing to pay for each quantity, and it is typically downward sloping.
2. Understand that the marginal revenue (MR) curve shows the additional revenue the monopolist earns from selling one more unit of output.
3. Recognize that because the monopolist must lower the price to sell additional units, the marginal revenue is less than the price, causing the MR curve to lie below the demand curve for all positive quantities.
4. Note that the MR curve starts at the same point as the demand curve when quantity is zero but falls faster, reflecting the decreasing additional revenue from selling more units.
5. Conclude that the statement 'The marginal revenue curve lies below the demand curve at all positive quantities' is true, while the other options are incorrect based on the relationship between demand and marginal revenue for a monopolist.