Differentiate between the quantity effect and price effect of a price cut by a monopoly

What will be an ideal response?


When a monopoly cuts the price of its product, it has two effects: a quantity effect and a price effect. Due to a lower market price, consumers purchase a greater quantity of the product, which increases the revenue to an extent. This is referred to as the quantity effect. On the other hand, because of the price cut, some of the monopolist's revenue is lost from the output that it was selling before the price cut. This is referred to as the price effect.

Economics

You might also like to view...

If your total satisfaction increases when you consume another unit, your marginal utility must be

A) positive. B) increasing. C) decreasing. D) negative.

Economics

Which of the following is a bank liability?

A) reserves B) consumer loans C) nontransaction deposits D) securities

Economics

An externality refers to the idea that

A. explicit costs differ from implicit costs. B. decision-makers do not internalize all the costs. C. private and internal costs differ. D. we cannot do anything that does not affect other people.

Economics

Which of the following is not a primary cause of business cycle fluctuations, according to real business cycle theory?

A. A change in the money supply B. A change in the size of the labor force C. A change in the real quantity of government purchases D. A change in the production function

Economics