Marginal revenue for a firm in

Marginal revenue for a firm in a competitive market is constant,but this is not the case for a monopolist. So, the marginal revenueof a monopolist might change for different quantities ofproduction. Please explain why.


The marginal revenue is the addition made to the total revenuewhen an additional unit of the product is sold. It is calculated bydividing the change in total revenue with the change in quantitysold.  

In a perfectly competitive market, the firm is price taker meansthey cannot influence the market price by changing their price andoutput decisions. This means the competitive firms can sell anyoutput at the market price, since the market price is constant themarginal revenue and the average revenue also the same.

For eg: The firm in a perfectly competitive market sell at $5 ,so the first unit gives a a total revenue of , and the second unit produce a total revenue of , and the third unit and so on , it is to be noted that the marginal revenue remainsthe same(Change in total revenue ) , this is because the price hasnot changed at all. In the perfect competition there is no priceeffect that is why the marginal revenue is constant.

But in a monopoly the situation is different , the monopoly is amarket structure characterized by single seller, so he has got theabsolute market power. The monopolist can charge any pricehe wants, but to increase the quantity sold the monopolist shoulddecrease the price and this will cause the marginalrevenue decrease compared to the previous unit sold. There is aprice effect in the monopoly that is why the marginal revenue islower than the price.

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