Whether a monopolist is able to increase his revenue by restricting his output depends on the shape of the_________

Analyze the question The question asks what determines whether a monopolist can raise his revenue by cutting output. The key word is revenue, not profit or cost.

Explain the concept A monopolist is the only seller, so he faces the whole market demand curve. Total revenue is:

TR = P × Q

When he restricts output, price rises along the demand curve, but quantity falls. Whether TR goes up or down depends on the price elasticity of demand, which is shown by the shape (slope and steepness) of the demand curve:

• Inelastic demand (steep curve): a fall in output raises price by a larger proportion than the fall in quantity, so TR increases.
• Elastic demand (flat curve): a fall in output raises price by a smaller proportion than the fall in quantity, so TR decreases.
• Unitary elasticity: TR stays the same.

Check the other options

• A. Marginal product: this is about production and inputs, not about the revenue the monopolist receives from sales.
• B. Marginal cost curve: this affects profit and the best output level (MC = MR), not revenue directly.
• D. Average cost curve: this also relates to costs and profit, not revenue.

Only the demand curve determines how price responds to a change in output, and so what happens to revenue.

Answer: C. demand curve

Exam tip: When you see "revenue" in a question, think of demand and elasticity. When you see "profit" or "cost", think of MC and AC curves. Remember that revenue depends on demand, and cost depends on production.