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Principles of Economics- Mankiw (5th) 312

Principles of Economics- Mankiw (5th) 312 - 322 PA R T F I...

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322 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY 2 gallons, it must lower the price to $9 in order to sell both gallons. And if it produces 3 gallons, it must lower the price to $8. And so on. If you graphed these two columns of numbers, you would get a typical downward-sloping demand curve. The third column of the table presents the monopolist’s total revenue. It equals the quantity sold (from the first column) times the price (from the second column). The fourth column computes the firm’s average revenue, the amount of revenue the firm receives per unit sold. We compute average revenue by taking the number for total revenue in the third column and dividing it by the quantity of output in the first column. As we discussed in Chapter 14, average revenue always equals the price of the good. This is true for monopolists as well as for competitive firms. The last column of Table 15-1 computes the firm’s marginal revenue, the amount of revenue that the firm receives for each additional unit of output. We compute
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