Module 28 - Module 28 Microeconomics The Monopolists Demand...

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Module 28 – Microeconomics The Monopolist’s Demand Curve and Marginal Revenue - The price-taking firm’s optimal output rule is to produce at the level whose marginal accost of the last unit produced is equal to the market price. - A monopolist, in contrast, is the sole supplier of its good. So its demand curve is simply the market demand curve, which is downward sloping. - This downward slope creates a wedge between the price of the good and the marginal revenue of the good- the change in revenue is generated by producing one more unit. - An increase in production by a monopolist has two opposing effects on
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Unformatted text preview: revenue. o A quantity efect. One more unit is sold, increasing total revenue by the price at which the unit is sold. o A price efect . To sell the last unit, the monopolist must cut the market price on all units sold. This decreases total revenue, -Because oF the price e±ect oF an increase in output, the marginal revenue curve oF a frm with market power always lies below its demand curve.-A proft-maximizing monopolists chooses the output level at which marginal cost is equal to marginal revenue- not to price. -At the monopolist’s proFt-maximizing quantity o± output: o MR = MC-...
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