ECON 2 Lecture Notes - Lecture 25: Monopoly Price, Marginal Revenue, Demand Curve
Document Summary
Demand curve is the market demand curve which is downsloping. Marginal revenue is less than price: with a fixed downsloping demand curve, the monopolist can increase sales only by charging a lower price. Consequently, marginal revenue is less than price for every level of output except the first. The lower price of the extra unit of output also applies to all prior units of output. Monopolist is a price maker: firms with downsloping demand curves are price makers. In deciding on the quantity of output to produce, the monopolist is also indirectly determining the price it will charge. Monopolist sets prices in the elastic region of demand: a profit maximizing monopolist will always want to avoid the inelastic segment of its demand curve in favour of some price-quantity combination in the elastic region. Here"s why: to get into the inelastic region, the monopolist must lower price and increase output. In the inelastic region a lower price means less total revenue.
