M B A 8620 Chapter Notes - Chapter 9: Marginal Revenue, Average Variable Cost, Demand Curve
2 Oct 2016
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The sole supplier of a good that has no close substitute. A profit-maximizing monopoly sets its price above marginal cost. A monopoly"s marginal revenue curve lies below its demanding curve at any positive quantity because its demand curve is downward sloping: revenue. The marginal revenue at any given quantity depends on the demands curve height (price) and the shape: the shape is described by the price elasticity of demand, = < 0. Percentage by which quantity changes as the price changes by o: marginal revenue is closer to price as demand becomes more elastic. Two steps to maximizing profit: the firm determines the output, q*, at which it makes the highest possible profit (or minimizes its losses) Monopoly maximizes its profit by producing where revenue equals its marginal cost. At smaller quantities, the monopoly"s marginal revenue is greater that its marginal cost, so its marginal profit its positive, the profit curve its upward sloping.
