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For a monopoly, what is the quantity effect? (a) The change in total revenue caused by old customers now paying the new price
For a monopoly, what is the quantity effect?
(a) The change in total revenue caused by old customers now paying the new price.
(b) The change in marginal revenue caused by old customers now paying the new price.
(c) The change in total revenue caused by the new customers now paying the old price.
(d) The change in marginal revenue caused by the new customers now paying the new price.
(e) The change in total revenue caused by the new customers now paying the new price.
Expert Solution
Option E is correct, the change in total revenue caused by the new customers now paying the new price.
Lets assume that the price decreases, this will increase demand and thus new consumers will enter the market to buy the product at a new price.
Therefore, total revenue is = new price * (new demand - initial demand). This is the quantity effect.
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