Question

When marginal revenue is zero for a monopolist facing a downward-sloping straight-line demand curve, the price elasticity of demand is:

A. greater than 1.
B. equal to 1.
C. less than 2.
D. equal to 0.

Answer 1

B) equal to 1.

Step-by-step explanation:

A monopolist as well as every single company, can only make profits when its marginal revenue is positive. If the marginal revenue is zero, that means that the firm is not earning any money by selling that unit.

When the demand for a monopoly's product is elastic, then marginal revenue is positive. When the demand for a monopoly's product is inelastic, then marginal revenue is negative. When the demand for a monopoly's product is unit elastic (equal to 1), then marginal revenue is zero.