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Marginal revenue is less than price for a monopolist because in a monopoly market, the monopolist is the sole seller and has the power to set the price. To sell more units, the monopolist must lower the price, which reduces the revenue gained from each additional unit sold. This results in marginal revenue being less than the price.
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What is the marginal revenue of a monopolist is?
The marginal revenue of a monopolist is the additional revenue generated from selling one more unit of a good or service. Unlike in perfect competition, a monopolist faces a downward-sloping demand curve, which means that to sell more units, it must lower the price on all units sold. As a result, marginal revenue is less than the price at which the additional unit is sold. This relationship is key to understanding a monopolist's pricing and output decisions.
What is the relationship between price and marginal revenue when a monopolist cuts the price to sell more?
Between them exist a simple line of difference, a monopolist can sale more with less money CHACHA!
Why does marginal revenue curve lie below the Demand curve?
Since Marginal revenue refers to the additional revenue earned by a monopolist by increasing the sale by 1 unit ( usually through lowering the price ), the additional revenue earned will always be less since there has been a drop in price.
What is monopolist's marginal revenues less than the price of its goods?
because the monopolist firms are price maker and they can set any price they want and the customers are not perfect knowleged
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)
What is the relationship between price and marginal revenue when a monopolist cuts the price to sell more?
Between them exist a simple line of difference, a monopolist can sale more with less money CHACHA!
Are marginal revenue average revenue and price are all equal for a monopolist?
No, in a monopolistic market, marginal revenue is less than average revenue and price. This is because the monopolist must lower the price in order to sell more units, leading to a decline in revenue per unit.
Why does marginal revenue curve lie below the Demand curve?
Since Marginal revenue refers to the additional revenue earned by a monopolist by increasing the sale by 1 unit ( usually through lowering the price ), the additional revenue earned will always be less since there has been a drop in price.
What is monopolist's marginal revenues less than the price of its goods?
because the monopolist firms are price maker and they can set any price they want and the customers are not perfect knowleged
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)
Is marginal revenue equal to price in economics?
In economics, marginal revenue is not always equal to price. Marginal revenue is the additional revenue gained from selling one more unit of a product, while price is the amount customers pay for that product. In competitive markets, where firms are price takers, marginal revenue is equal to price. However, in markets with market power, such as monopolies, marginal revenue is less than price.
Marginal revenue curve?
Explain why the marginal revenue(MR) is always less than the average revenue (AR)?
What is the relationship in price and marginal revenue for price setters?
The marginal revenue of selling an additional unit of output for a price setter (hence within an imperfect market) is always less than market price. Picture a downwards sloping market demand curve (hence individual monopolies demand curve); at P=6, Q=2, and at P=5, Q=3. To sell an additional unit of output, the firm must drop price from 6 to 5, meaning the total revenue will increase from (6x2)=12 to (5x3)=15. This increase in revenue (marginal revenue) is $3. Note $3 is not only smaller than the original price, but than the new price as well. Hence, price is always greater than marginal revenue for a price setter.
The additional income from selling one more unit of a good sometimes equal to priceis?
The additional income from selling one more unit of a good is referred to as marginal revenue. In a perfectly competitive market, this marginal revenue is equal to the price of the good because firms can sell as many units as they want at the market price without affecting it. However, in monopolistic or imperfectly competitive markets, marginal revenue can be less than the price due to the need to lower the price to sell additional units. Thus, while marginal revenue is often equal to price, this is not universally true across all market structures.
Why monopoly is allocatively inefficient relative to perfectly competitive market?
A monopoly produces at a point where marginal revenue equals marginal cost, they don't charge this price, but charge a higher price that corresponds with the demand they face. Therefore they produce less and charge more than a competitive firm that equates the price to marginal cost.
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.
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.
