1. Marginal Revenue & Monopoly

2. Marginal Revenue
Marginal Revenue (MR) – additional revenue gained from selling one more unit
MR = ∆ in Total Revenue/ ∆ in Quantity Sold
Example: Firm sells 5 more T-Shirts at $20 each
MR = $100/5 units = $20

3. Marginal Revenue Handout

4. Demand > Marginal Revenue
If a monopoly wants to sell more, it must lower price
Price falls for ALL units sold.
Price
$11 10
Example: Lower price from $8 => $7 to sell 1 more unit 9 8 7
Old TR $24 ($8 X 3)
New TR = $28 ($7 X 4)
MR = $4 6 5 4 3 D 2 1 MR
This is why P ≠ MR –1 1 2 3 4 5 6 7 8
Quantity of Water –2 –3 –4

5. Profit Maximization All profit-maximizing firms set: MR =MC
Competitive firms: P = MR = MC
set Price = MC
Monopoly firm = P > MR = MC
Set MR = MC
P > MR
P = MR

6. Profit Maximizaton MC MC Set P = MC ------------- Set MR = MC E1
Set MR = MC E1