A Monopolists Marginal Revenue Curve, Research Paper Example

A Monopoly can be defined as a market  situation where there is only one seller.  Owing to the fact of this monopolistic condition , you have a downward sloping demand curve.  Hence where the monopolist wishes to sell more goods, as a result he must lower the price.  As a result of reducing the price the amount of marginal revenue , as a result of selling the unit, falls below the price.   ” The seller attempts to set marginal cost equal to marginal revenue, or to produce at q0. From the consumers’ viewpoint, the best amount to produce would be q1. The monopolist restricts output because of a divergence between marginal benefit as the firm perceives it and marginal benefit as buyers perceive it. Producing beyond q0 is not in the interests of the firm because the extra benefit it sees, the marginal revenue curve, is less than the extra cost of production, shown by the marginal cost curve. Extra output is in the interests of buyers because the extra benefit they get, shown by the demand curve, is greater than the extra costs of production.” (Schenk)

From the demand curve it is possible to derive total revenue and subsequently marginal revenue. ” Marginal Revenue = (Change in total revenue) divided by (Change in sales)” (Osborne)

Hence if you understand what happens to Marginal revenue you can determine total revenue when the sales position changes. ” If the firm sells 100 for $10.00, the average revenue for each unit is $10.00. But as sellers sell more, the average revenue (or price) drops, and this can only happen if the marginal revenue is below price, pulling the average down.” (Robert).

Works Cited

Osborne, Martin J. Marginal Revenue for a Monopolist. 2009. 11 11 2009 <http://www.economics.utoronto.ca/osborne/2×3/tutorial/MR.HTM>.

Robert, Schenk. Revenue and Demand. 2009. 11 11 2009 <http://ingrimayne.com/econ/elasticity/RevEtDemand.html>.

Schenk, Robert. Theory of Monopoly. 2009. 10 11 2009 <http://ingrimayne.com/econ/Monopoly/Monopoly.html>.