For a monopoly firm, which of the following statements is correct?

• A. The firm can always increase total revenue by increasing output.
• B. The firm faces a perfectly elastic demand curve.
• C. There are many close substitutes for the product.
• D. Marginal revenue is less than price for all units sold except the first.

Answer: (D)

Verified step by step guidance

1. Understand the nature of a monopoly: A monopoly is a single seller in the market with no close substitutes for its product, which means it faces the entire market demand curve.
2. Recall the shape of the demand curve for a monopoly: It is downward sloping, indicating that to sell more units, the firm must lower the price.
3. Define marginal revenue (MR): MR is the additional revenue gained from selling one more unit. For a monopoly, because the price must be lowered to sell additional units, MR is less than the price (P) for all units after the first.
4. Analyze why MR is less than price: When the monopoly lowers the price to sell an extra unit, it loses some revenue on all previous units sold at the higher price, causing MR to be less than the price.
5. Contrast with other options: A perfectly elastic demand curve implies a price taker (not a monopoly), and many close substitutes contradict the monopoly assumption. Also, total revenue does not always increase with output due to the downward sloping demand.