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How can a company have a downward demand curve but still have marginal revenue equal price?
Wiki User
∙ 15y ago
If the Demand Curve is separate from the MR=P curve, the company can not be of Perfect Competition. It can exist in any other market structure: Monopolistic Competition, Monopoly, or Imperfect Competition. In each of these three structures, the Demand Curve will always fall twice as fast as the MP=P=AR Curve. To answer your question in these terms, the company can have a downward sloping Demand Curve separate from the MR=P curve if it is not in the PC Market Structure.
Wiki User
∙ 15y ago
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If marginal revenue is less than average revenue will the demand curve be downward sloping?
This question reflects a fundamental misunderstanding of supply and demand. Marginal revenue and average revenue are related to a firm's cost function, and are thus connected to SUPPLY. They have nothing to do with a demand curve in classical economics, which is the marginal benefit to the CONSUMER of being in the market.
Why do the demand and marginal revenue curves coincide?
Because in Pure Competition, Demand equals Price, and Price equals Marginal Revenue;hence, Demand equals Marginal revenue.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
Relationship between Marginal revenue and Demand curve?
marginal revenue always lies behind the demand curve,and when demand increases marginal revenue also increases.demand curve is used to determine price of a commodity.
How to use the concept of price elasticity of demand to maximize revenue?
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand < 1.
If marginal revenue is less than average revenue will the demand curve be downward sloping?
This question reflects a fundamental misunderstanding of supply and demand. Marginal revenue and average revenue are related to a firm's cost function, and are thus connected to SUPPLY. They have nothing to do with a demand curve in classical economics, which is the marginal benefit to the CONSUMER of being in the market.
Why do the demand and marginal revenue curves coincide?
Because in Pure Competition, Demand equals Price, and Price equals Marginal Revenue;hence, Demand equals Marginal revenue.
When demand is perfectly elastic what happens to marginal revenue?
When Demand is perfectly elastic, Marginal Revenue is identical with price.
Relationship between Marginal revenue and Demand curve?
marginal revenue always lies behind the demand curve,and when demand increases marginal revenue also increases.demand curve is used to determine price of a commodity.
How to use the concept of price elasticity of demand to maximize revenue?
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand < 1.
What is the relationship between price elasticity of demand and the monopolist's revenue?
marginal revenue is negative where demand is inelastic
If marginal revenue product capital increases the demand or supply curve?
Demand.
What is the condition of equilibrium for monopolist?
Marginal Revenue = Marginal Cost; mark-up price to the demand curve.
In a monopoly why is the marginal revenue curve always below the demand curve?
because price and output are related by the demand function in a monopoly. it is the same thing to choose optimal price or to choose the optimal output. even though the monopolist is assumed to set price and consumers choose quantity as a function of price, we can think of the monopolist as choosing the optimal quantity it wants consumers to buy and then setting the corresponding price. OR in simpler terms Because AR (demand) is downward sloping - (see equi-marginal rule or Law of Equi-Marginal Utility). To sell one more unit of output, the firm must lower its price, meaning that the revenue received is less than that received for the previous unit (marginal revenue received for unit 2 is less than that for unit 1). Therefor the marginal revenue will be less than the average revenue. Unit 1 sold for $5 Marginal revenue=$5 Average Revenue=$5 Unit 2 sold for $4 Marginal revenue=$4 Average Revenue=$4.50 ($5+$4/2)
When a firm makes a profit by producing enough goods to meet demand without having leftover supply at what point is it?
When a firm makes a profit by producing enough goods to meet demand without having leftover supply the point of profit is where marginal revenue equals marginal cost.
How does the principle of diminishing marginal utility explain the slope of the demand curve?
The principle of diminishing marginal utility explains the slope of the demand curve by letting us be able to see which direction the slope is in, which is always downward.
Why is the marginal revenue curve below the demand curve and why does the vertical distance between them diverge as output increases?
The demand curve is a tremendously useful illustration for those who can read it. We have seen that the downward slope tells us that there is an inverse relationship between price and quantity. One can also view the demand curve as separating a region in which sellers can operate from a region forbidden to them. But there is more, especially when one considers what an area on the graph represents. If people will buy 100 units of a product when its price is $10.00, as the picture below illustrates, total revenue for sellers will be $1000. Simple geometry tells us that the area of the rectangle formed under the demand curve in the picture is found by multiplying the height of the rectangle by its width. Because the height is price and the width is quantity, and since price multiplied by quantity is total revenue, the area is total revenue. The fact that area on supply and demand graphs measures total revenue (or total expenditure by buyers, which is the same thing from another viewpoint) is a key idea used repeatedly in microeconomics. From the demand curve, we can obtain total revenue. From total revenue, we can obtain another key concept: marginal revenue. Marginal revenue is the additional revenue added by an additional unit of output, or in terms of a formula: Marginal Revenue = (Change in total revenue) divided by (Change in sales) According to the picture, people will not buy more than 100 units at a price of $10.00. To sell more, price must drop. Suppose that to sell the 101st unit, the price must drop to $9.95. What will the marginal revenue of the 101st unit be? Or, in other words, by how much will total revenue increase when the 101st unit is sold? There is a temptation to answer this question by replying, "$9.95." A little arithmetic shows that this answer is incorrect. Total revenue when 100 are sold is $1000. When 101 are sold, total revenue is (101) x ($9.95) = $1004.95. The marginal revenue of the 101st unit is only $4.95. To see why the marginal revenue is less than price, one must understand the importance of the downward-sloping demand curve. To sell another unit, sellers must lower price on all units. They received an extra $9.95 for the 101st unit, but they lost $.05 on the 100 that they were previously selling. So the net increase in revenue was the $9.95 minus the $5.00, or $4.95. There is a another way to see why marginal revenue will be less than price when a demand curve slopes downward. Price is average revenue. If the firm sells 100 for $10.00, the average revenue for each unit is $10.00. But as sellers sell more, the average revenue (or price) drops, and this can only happen if the marginal revenue is below price, pulling the average down. The reasoning of why marginal will be below average if average is dropping can perhaps be better seen in another example. Suppose that the average age of 20 people in a room is 25 years, and that another person enters the room. If the average age of the people rises as a result, the extra person must be older than 25. If the average age drops, the extra person must be younger than 25. If the added person is exactly 25, then the average age will not change. Whenever an average is rising, its marginal must be above the average, and whenever an average is falling, its marginal must be below the average. If one knows marginal revenue, one can tell what happens to total revenue if sales change. If selling another unit increases total revenue, the marginal revenue must be greater than zero. If marginal revenue is less than zero, then selling another unit takes away from total revenue. If marginal revenue is zero, than selling another does not change total revenue. This relationship exists because marginal revenue measures the slope of the total revenue curve. The picture above illustrates the relationship between total revenue and marginal revenue. The total revenue curve will be zero when nothing is sold and zero again when a great deal is sold at a zero price. Thus, it has the shape of an inverted U. The slope of any curve is defined as the rise over the run. The rise for the total revenue curve is the change in total revenue, and the run is the change in output. Therefore, Slope of Total Revenue Curve = (Change in total revenue) / (Change in amount sold) But this definition of slope is identical to the definition of marginal revenue, which demonstrates that marginal revenue is the slope of the total revenue curve.
