![]() The point where it hits the demand curve is the unit elastic point. We first draw a line from the quantity where MR=0 up to the demand curve. We use the quantity where MR=0 to determine the difference. The demand curve on a monopoly graph have both elastic, inelastic, and unit elastic sections. The price is determined by going from where MR=MC, up to the demand curve. Their profit-maximizing profit output is where MR=MC. If the firm could charge your exact willingness, MR would equal D. Its additional revenue is always less than what you're willing to pay at that quantity because it's selling a higher quantity. This is kind of a tricky fact to wrap around your head, but in essence, MR < D because a monopoly cannot price-discriminate. For example, if you can sell 5 units for $10 each, but 6 units for $8 each, you have to sell each of those first 5 for $8, not $10, meaning your marginal revenue is always less than demand. Because demand is decreasing, a consumer's willingness to buy at a higher Q is lower, meaning the additional revenue you'll receive from each unit decreases.įor a monopoly, the marginal revenue curve is lower on the graph than the demand curve, because the change in price required to get the next sale applies not just to that next sale but to all the sales before it. This is known as the inability to price discriminate. This is because they have to lower their price in order to sell each additional unit. In a monopoly graph, the demand curve is located above the marginal revenue cost curve. Government regulation can help to promote competition and prevent monopolies from becoming too powerful.
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