Author Question: Differentiate between the quantity effect and price effect of a price cut by a monopoly. What ... (Read 73 times)

Brittanyd9008 · **on:** Jun 29, 2018

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

What will be an ideal response?

Question 2

Jack refused to contribute money for building a public park when he was contacted individually. However, he readily agreed to donate when he was asked to contribute for a similar cause in front of his neighbors.

Such behavior is an example of ________. A) pure altruism
B) consumerism
C) rationalism
D) impure altruism

karmakat49 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

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.

Answer to Question 2

D