For a monopolist: price equals average total cost. price is above marginal revenue. marginal revenue equals zero.

The correct answer is C) Price is above the Marginal Revenue Curve.

Explanation:

In a monopoly, entry in to the market is prohibited or very difficult. It features one seller and many buyers. The monopolist controls price and output simultaneously but not independent of each other.

However, in order to sell more, the monoplist must drop its prices. This is why the Marginal Revenue curve is steeper under a monopolistic market.

If for example, a monopolist can sell 1 loaf of bread of $60 or 2 loaves for $59 each.  To sell two loaves, the price must drop by $1.  But MR for the second one is change in Total Revenue divided by change in quantity or (118 – 60) / (2-1) = $58.  So MR fell by $2 which is arrived at by subtracting $60 from $58. This of course is twice the rate of price.      

Cheers!

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