Lowering price to sell more means you lower price on

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lowering price to sell more means you lower price on all other buyers to gain marginal buyer's revenue this is the key tradeoff what is the optimal Q and therefore optimal P Monopolypricing Recall profits are given C C
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IT G R Q Cca Profits are maximized at ITC R GT C CGT O MRCA MCCA MCC MRC If MR Q MC Q then it makes sense to produce more since we are still making profits If MRQCMCQ then it makes sense to produce less since we are losing profits If MR a MCbQ we are at the point which maximizes profits Example P Q A b Q cc CQ constant marginal cost Find pk IT PQ Q c Q Ca b QQ CQ IT't A b G't bQ c A 2b Q c O Q AI 2b p a b Ebt a axe 2 Atf 2
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In the competitive model a firm is a price tater so marginal revenue is R Q p Q MR a p
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