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.
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