Microeconomics · free preview
Marginal Revenue Below Price
Because a monopolist must cut price on every unit to sell one more, its marginal revenue lies below demand, and for a straight-line demand curve marginal revenue falls twice as fast.
1. The monopolist's awkward arithmetic
The monopolist's awkward arithmetic
2. The two effects
The two effects
3. The linear shortcut
The linear shortcut
4. Reading the table like a monopolist
Reading the table like a monopolist
5. Computing marginal revenue
A monopolist can sell 3 units at 42 dollars each or 4 units at 35 dollars each. What is the marginal revenue of the fourth unit?
6. The elastic side
Why does a monopolist never operate on the inelastic portion of its demand curve?
7. The MR line
A straight-line demand curve is P = 60 - Q/2. Write the value of marginal revenue at Q = 24, using the twice-the-slope rule, MR = 60 - Q, and give the number.
8. The arithmetic of the third unit
A monopolist can sell 2 units at 30 dollars each, or 3 units at 26 dollars each. What is the marginal revenue of the third unit?
9. Never on the flat of the curve
Why does a monopolist never operate where its demand is inelastic?
10. Doubling the slope
A straight-line demand curve is P = 100 - Q. Using the rule that marginal revenue doubles the slope, compute marginal revenue at Q = 30, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free