CHAPTER 15MONOPOLY323revenue is greater than the output effect. In this case, when the firm produces anextra unit of output, the price falls by enough to cause the firm’s total revenue todecline, even though the firm is selling more units.PROFIT MAXIMIZATIONNow that we have considered the revenue of a monopoly firm, we are ready toexamine how such a firm maximizes profit. Recall from Chapter 1 that one oftheTen Principles of Economicsis that rational people think at the margin. Thislesson is as true for monopolists as it is for competitive firms. Here we apply thelogic of marginal analysis to the monopolist’s problem of deciding how much toproduce.Figure 15-4 graphs the demand curve, the marginal-revenue curve, and thecost curves for a monopoly firm. All these curves should seem familiar: The de-mand and marginal-revenue curves are like those in Figure 15-3, and the costcurves are like those we introduced in Chapter 13 and used to analyze competitivefirms in Chapter 14. These curves contain all the information we need to determine
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