Monopoly - Monopoly I. Single-Price Monopolist: charges one...

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Monopoly I. Single-Price Monopolist: charges one price for the product A. Short-Run Revenue firm demand = market demand. 1. Total Revenue (TR) = P*Q; the D-curve has a negative slope, meaning that if the firm wishes to sell more of their product, they must induce buyers to purchase the product by lowering the price. Thus, there are two effects on total revenue: sales (Q) may be increased, but to do so the price must be lowered. 2. Marginal Revenue (MR) = ∆TR/∆Q; the change in total revenue from selling an additional unit is equal to the price the good sells for minus the amount lost on all units because the price had to be lowered. MR < P B. Monopoly revenue with linear demand Example: P = 10 – 0.5Q
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P = AR Q TR MR 10 0 0 -- 9 10 90 9 8 20 160 7 7 30 210 5 6 40 240 3 5 50 250 1 4 60 240 –1 3 70 210 –3 2 80 160 –5 1 90 90 –7 0 100 0 –9 $ 10 9 8 7 6 5 4 3 2 1 0 10 20 30 40 50 60 70 80 90 100 D -1 -3 MR -5
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C. Marginal revenue and elasticity: 1. If demand is elastic (e p > 1), then TR↑ as Q↑
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Monopoly - Monopoly I. Single-Price Monopolist: charges one...

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