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Monopolist optimizing price: Marginal revenue Video Lecture - Economics

FAQs on Monopolist optimizing price: Marginal revenue Video Lecture - Economics

1. What is marginal revenue in the context of a monopolist optimizing price?

Marginal revenue refers to the additional revenue generated by a monopolist from selling one more unit of a product. In the context of optimizing price, it is important for a monopolist to understand how changes in quantity sold affect their revenue. By comparing the marginal revenue with the marginal cost, a monopolist can determine the optimal price and quantity to maximize their profits.

2. How is marginal revenue calculated for a monopolist?

To calculate marginal revenue for a monopolist, you need to compare the change in total revenue with the change in quantity sold. It can be calculated by dividing the change in total revenue by the change in quantity. Mathematically, it is expressed as MR = ΔTR/ΔQ, where MR represents marginal revenue, ΔTR is the change in total revenue, and ΔQ is the change in quantity sold.

3. Why is marginal revenue important for a monopolist?

Marginal revenue is crucial for a monopolist as it helps them make pricing decisions to maximize their profits. By understanding how changes in quantity sold affect their revenue, a monopolist can determine the optimal price and quantity to produce. If marginal revenue is positive, it indicates that selling an additional unit will increase total revenue, while negative marginal revenue suggests that selling an additional unit will decrease total revenue.

4. How does a monopolist use marginal revenue to set prices?

A monopolist can use marginal revenue to set prices by comparing it with the marginal cost. If the marginal revenue is greater than the marginal cost, the monopolist can increase their profits by producing and selling more units. In this case, the monopolist may lower the price to attract more customers and increase their sales. Conversely, if the marginal revenue is less than the marginal cost, the monopolist should reduce production and increase prices to maximize their profits.

5. Can a monopolist always optimize price using marginal revenue?

While marginal revenue is an important factor in price optimization for a monopolist, it may not always lead to the optimal pricing decision. Other factors, such as market demand, production costs, and competitive pressures, also play a significant role in determining the optimal price. A monopolist needs to consider these factors in conjunction with marginal revenue to make informed pricing decisions and maximize their profits.

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Jan 05, 2025 Last updated

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